The Epple Corporation is authorized to issue 20,000 shares of $100 par, convertible, callable preferred stock and

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The Epple Corporation is authorized to issue 20,000 shares of $100 par, convertible, callable preferred stock and 100,000 shares of $10 stated value common stock. Currently, the company has outstanding 6,000 shares of preferred stock and 40,000 shares of common stock. The following are several alternative transactions:

1. Acquired a patent by issuing 2,500 shares of common stock and bonds with the face value of $100,000. The stock is currently selling for $27 per share and the bonds are selling at 98.

2. Sold, for $96,000 cash, a “package” consisting of 500 shares of preferred stock and 2,000 shares of common stock. Currently, the preferred and common stock are independently selling for $112 and $22 per share, respectively.

3. Purchased land by issuing 300 shares of preferred stock and 1,000 shares of common stock. The common stock is selling for $25 per share, but the preferred stock is not being actively traded. The value of the land is appraised at $57,000.

4. The corporation calls the 6,000 shares of preferred stock (originally issued at $108 per share) at a call price of $112 per share. Common stock is currently selling for $23 per share. The stockholders elect not to convert into common stock.

5. Same as transaction 4, except that stockholders owning 4,000 shares of preferred stock elect to convert each share into five shares of common stock. The remaining 2,000 shares of preferred stock are retired.

6. Upon approval by the state, the board of directors decides to split the common stock two for one, reducing the stated value to $5 per share and increasing the authorization to 200,000 shares. (Remember, only 40,000 shares are issued and outstanding.)

7. Same as transaction 6, except that the stated value is reduced to $4 per share.


Required

Prepare the journal entry necessary to record each transaction. Below each entry, explain your reason for the values used.


Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Intermediate Accounting

ISBN: 978-0324300987

10th Edition

Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones

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