Any Takers 1

 

 

Instructions for each section must be fully adhered to.

 

Section 1

 

Instructions for Exercise 15:

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.

 

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 for Exercise 1:

Provide answers for Max.

 

1)            Max Weinberg is studying for an accounting test and has developed the following questions about investments.

1. What are three reasons why companies purchase investments in debt or stock securities?

2. Why would a corporation have excess cash that it does not need for operations?

3. What is the typical investment when investing cash for short periods of time?

4. What are the typical investments when investing cash to generate earnings?

5. Why would a company invest in securities that provide no current cash flows?

6. What is the typical stock investment when investing cash for strategic reasons?

 

Instructions for Exercise 2:

 

(A) Journalize the transactions.

(B) Prepare the adjusting entry for the accrual of interest at December 31.

 

2)            Foren Corporation had the following transactions pertaining to debt investments.

                                I.            Jan. 1 Purchased 50 8%, $1,000 Choate Co. bonds for $50,000 cash plus brokerage fees of         $900. Interest is payable semiannually on July 1 and January 1.

                              II.            July 1 Received semiannual interest on Choate Co. bonds.

                            III.            July 1 Sold 30 Choate Co. bonds for $34,000 less $500 brokerage fees.

 

Instructions for Problem 6A

 

(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.

 

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.

 

 

Section 2

 

Chen, Inc. purchases 1,000 shares of its own previously issued $5 per common stock for $12,000. Assuming the shares are held in the treasury, what effect does this transaction have on (A) net income, (B) total assets, (C) total paid-in capital, and (D) total stockholders’ equity? 

The treasury stock purchased in the above question was resold by Chen, Inc. for $15,000. What effect does this transaction have on (A) net income, (B) total assets, (C) total paid-in capital, and (D) total stockholders’ equity?