Equity and Investments
Resources: Ch. 11 & 12 of Financial Accounting
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Complete Exercises E11-15, E12-1, & E12-2.
Complete Problem 11-6A.
Submit as a Microsoft® Excel® or Word document.
E11-15 On October 31, the stockholders’ equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two courses of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.
Instructions
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity and outstanding shares. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split.
BE12-1 Coffey Corporation purchased debt investments for $52,000 on January 1, 2011. On July 1, 2011, Coffey received cash interest of $2,340. Journalize the purchase and the receipt of interest. Assume that no interest has been accrued.
BE12-2 ; On August 1,Wade Company buys 1,000 shares of Morgan common stock for $35,000 cash, plus brokerage fees of $700. On December 1,Wade sells the stock investments for $40,000 in cash. Journalize the purchase and sale of the common stock.
P11-6A Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the following balances pertaining to stockholders’ equity.
Preferred Stock ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; $ 240,000 ;
Paid-in Capital in Excess of Par Value—Preferred ; ; ; ; ; ; ; ; ; ; ; 56,000
Common Stock ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; 2,000,000
Paid-in Capital in Excess of Stated Value—Common ; ; ; ; ; ; ; 5,700,000
Treasury Stock—Common (1,000 shares) ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; 22,000
Paid-in Capital from Treasury Stock ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; 3,000
Retained Earnings ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; 560,000
The preferred stock was issued for land having a fair market value of $296,000.All common stock issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share. ; No dividends were declared in 2011.
Instructions
(a) Prepare the journal entries for the:
; ; ; ; ; ; ; ; ; ; ; (1) Issuance of preferred stock for land.
; ; ; ; ; ; ; ; ; ; ; (2) Issuance of common stock for cash.
; ; ; ; ; ; ; ; ; ; ; (3) Purchase of common treasury stock for cash.
; ; ; ; ; ; ; ; ; ; ; (4) Sale of treasury stock for cash.
(b) Prepare the stockholders’ equity section at December 31, 2011.