Java, Inc., was organized and authorized to issue 5,000 shares of $100 par value, 9 percent preferred stock and 50,000 shares of no-par, $5 stated value common stock on July 1, 2011. Stock-related transactions for Java are as follows:
July 1 Issued 10,000 shares of common stock at $11 per share.
1 Issued 500 shares of common stock at $11 per share for legal services rendered in connection with the organization of the company.
2 Issued 1,000 shares of preferred stock at par value for cash.
10 Issued 2,500 shares of common stock for land on which the asking price was $35,000. Market value of the stock was $12. Management wishes to record the land at full market value of the stock.
Aug. 2 Purchased 1,500 shares of its common stock at $13 per share.
10 Declared a cash dividend for one month on the outstanding preferred stock and $0.02 per share on common stock outstanding, payable on August 22 to stockholders of record on August 12.
12 Date of record for cash dividends.
22 Paid cash dividends.

1. Prepare journal entries to record the transactions.
2. Prepare the stockholders’ equity section of the balance sheet as it would appear on August 31, 2011. The company’s net income for July and August was $11,500.
3. Calculate quarterly performance measures: dividends yield, price/earnings ratio, and return on equity. Assume earnings per common share are $1 and market price per common share is $20. For beginning stockholders’ equity, use the balance after the July transactions.
4. Discuss the results in 3, including the effect on investors’ returns and the company’s profitability as it relates to stockholders’ equity.

  • CreatedSeptember 10, 2014
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