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business
principles financial accounting

Financial Accounting A Business Perspective 7th Edition Roger H. Hermanson, James Don Edwards - Solutions

Explain the nature of the account entitled Paid-In Capital in Excess of Par Value. Under what circumstances is this account credited?
Blake Corporation issued 5,000 shares of \(\$ 100\) par value common stock at \(\$ 120\) per share. What is the legal capital of Blake Corporation, and why is the amount of legal capital important?
What is the general approach of the accountant in determining the dollar amount at which to record the issuance of capital stock for services or property other than cash?
What assumptions are made in determining book value?
Assuming there is no preferred stock outstanding, how can the book value per share of common stock be determined? Of what significance is the book value per share? What is the relationship of book value per share to market value per share?
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, what was the number of shares of common stock authorized?
Real World Question Based on the financial statements of The Limited, Inc., contained in the annual report booklet, what was the 1996 ending paid-in capital?
Real World Question Based on the financial statements of John H. Harland Company contained in the annual report book let, what was the 1996 ending number of shares of common stock issued?
Winters Corporation has outstanding 1,000 shares of noncumulative preferred stock and 2,000 shares of common stock. The preferred stock is entitled to an annual dividend of \(\$ 100\) per share before dividends are declared on common stock. What are the total dividends received by each class of
Zeff Corporation has 2,000 shares outstanding of cumulative preferred stock and 6,000 shares of common stock. The preferred stock is entitled to an annual dividend of \(\$ 18\) per share before dividends are declared on common stock. No preferred dividends were paid for last year and the current
Gordon Company issued 10,000 shares of common stock for \(\$ 1,120,000\) cash. The common stock has a par value of \(\$ 100\) per share. Give the journal entry for the stock issuance.
Thore Company issued 30,000 shares of \(\$ 20\) par value common stock for \(\$ 680,000\). What is the journal entry for this transaction? What would the journal entry be if the common stock had no-par or stated value?
Li \& Tu, Inc., needed land for a plant site. It issued 100 shares of \(\$ 480\) par value common stock to the incorporators of their corporation in exchange for land, which cost \(\$ 56,000\) one year ago. Experienced appraisers recently valued the land at \(\$ 72,000\). What journal entry would
Smart Corporation owes a trade creditor \(\$ 30,000\) on open account which the corporation does not have sufficient cash to pay. The trade creditor suggests that Smart Corporation issue to him 750 shares of the \(\$ 24\) par value common stock, which is currently selling on the market at \(\$
Why would a law firm ever consider accepting stock of a new corporation having a total par value of \(\$ 320,000\) as payment in full of a \(\$ 480,000\) bill for legal services rendered? If such a transaction occurred, give the journal entry the issuing company would make on its books.
The stockholders' equity section of Graf Company's balance sheet is as follows:Compute the average price at which the 70,000 issued shares of common stock were sold. Compute the book value per share of common stock. Stockholders' equity: Paid-in capital: Common stock-without par value, $12 stated
On January 1, 1994, the retained earnings of Quigley Company were \(\$ 432,000\). Net income for the succeeding five years was as follows:The outstanding capital stock of the corporation consisted of 2,000 shares of preferred stock with a par value of \(\$ 480\) per share that pays a dividend of
On January 1, 1998, Cowling Company was authorized to issue 500,000 shares of \(\$ 5\) par value common stock. It then completed the following transactions:a. Prepare general journal entries to record the transactions.b. Prepare the balance sheet of the company as of March 1, 1998. 1998 Jan. 14 29
On July 3, 1998, Barr Company was authorized to issue 15,000 shares of common stock 3,000 shares were issued immediately to the incorporators of the company for cash at \(\$ 320\) per share. On July 5 of that year, an additional 300 shares were issued to the incorporators for services rendered in
Tempo Company received its charter on April 1, 1998, authorizing it to issue: (1) 10,000 shares of \(\$ 400\) par value, \(\$ 32\) cumulative, convertible preferred stock; (2) 10,000 shares of \(\$ 12\) cumulative no-par preferred stock having a stated value of \(\$ 20\) per share and a liquidation
Kane Company issued all of its 5,000 shares of authorized preferred stock on January 1, 1997, at \(\$ 100\) per share. The preferred stock is no-par stock, has a stated value of \(\$ 5\) per share, is entitled to a cumulative basic preference dividend of \(\$ 6\) per share, is callable at \(\$
The stockholders' equity sections from three different corporations' balance sheets follow.Required Compute the book values per share of the preferred and common stock of each corporation assuming that in a liquidation the preferred stock receives par value plus dividends in arrears. 1. 2.
Mendell, Inc., is a corporation in which all of the outstanding preferred and common stock is held by the four Lehman brothers. The brothers have an agreement stating that the remaining brothers will, upon the death of a brother, purchase from the estate his holdings of stock in the company at book
The outstanding capital stock of Robbins Corporation consisted of 3,000 shares of \(10 \%\) preferred stock, \(\$ 250\) par value, and 30,000 shares of no-par common stock with a stated value of \(\$ 250\). The preferred was issued at \(\$ 412\), the common at \(\$ 480\) per share. On January 1,
On December 27, 1997, Glade Company was authorized to issue 250,000 shares of \(\$ 24\) par value common stock. It then completed the following transactions:a. Prepare general journal entries to record the transactions.b. Prepare the balance sheet of the company as of March 1, 1998. 1998 Jan. 14
In the corporate charter that it received on May 1, 1998, Norris Company was authorized to issue 15,000 shares of common stock. The company issued 1,000 shares immediately for \(\$ 82\) per share, cash.On July 2 , the company issued 100 shares of stock to a lawyer to satisfy a \(\$ 8,400\) bill for
On May 1, 1998, Farmington Company received a charter that authorized it to issue:1. 4,000 shares of no-par preferred stock to which a stated value of \(\$ 12\) per share is assigned. The stock is entitled to a cumulative dividend of \(\$ 9.60\), convertible into two shares of common stock,
On January 2, 1997, the King Company received its charter. It issued all of its authorized 3,000 shares of no-par preferred stock at \(\$ 104\) and all of its 12,000 authorized shares of nopar common stock at \(\$ 40\) per share. The preferred stock has a stated value of \(\$ 50\) per share, is
The common stock of Lang Corporation is selling on a stock exchange for \(\$ 90\) per share. The stockholders' equity of the corporation at December 31, 1998, consists of:Assume that in liquidation the preferred stock is entitled to par value plus cumulative unpaid dividends.a. What is the total
Haft Corporation has an agreement with each of its 15 preferred and 30 common stockholders that in the event of the death of a stockholder, it will purchase at book value from the stockholder's estate or heirs the shares of Haft Corporation stock held by the deceased at the time of death. The book
Rudd Company and Clay Company have extremely stable net income amounts of \(\$ 4,800,000\) and \(\$ 3,200,000\), respectively. Both companies distribute all their net income as dividends each year. Rudd Company has 100,000 shares of \(\$ 80\) par value, \(6 \%\) preferred stock, and 500,000 shares
Jesse Waltrip recently inherited \(\$ 480,000\) cash that he wishes to invest in the common stock of either the West Corporation or the East Corporation. Both corporations have manufactured the same types of products for five years. The stockholders' equity sections of the two corporations' latest
Refer to the 1996 consolidated balance sheet of The Coca-Cola Company in the annual report booklet. In the shareholders' equity section, determine the price paid per share of common stock upon original issuance. Assume that the capital surplus represents additional paid-in capital from the issuance
Refer to the ethics case concerning Joe Morrison on page 449 to answer the following questions:a. Which alternative would benefit the company and its management over the next several years?b. Which alternative would benefit society?c. If you were Morrison, which side of the argument would you take?
In teams of two or three students, examine the annual reports of three companies and calculate each company's return on common shareholders' equity for the most recent two years. At least two years are needed to observe any changes. As a team, decide in which of the three companies you would
In a group of one or two students, contact state officials and/or consult library resources to inquire about the incorporation laws in your state. Determine your state laws regarding the issuance of stock at an amount below par value, how legal capital is determined, and the requirements and
Visit the following website for Macromedia;\section*{http://www.macromedia.com}Pursue choices on the screen until you locate the consolidated statement of stockholders' equity. You will probably go down some "false paths" to get to this financial statement, but you can get there. This experience is
Visit the following website for Gartner Group:\section*{http://www.gartner.com}Pursue choices on the screen until you locate the consolidated statement of stockholders' equity. You will probably go down some "false paths" to get to this financial statement, but you can get there. This experience is
The retained earnings balance of a corporation is part of its paid-in capital.
The purchase of treasury stock does not affect stockholders' equity.
Dividends are expenses since they decrease stockholders' equity.
A stock dividend reduces the retained earnings balance and permanently capitalizes the reduced portion of the retained earnings.
A retained earnings appropriation reduces the total stockholders' equity shown on the balance sheet.
Heavy frost damage suffered by a Florida citrus grower's orange trees would probably be reported as an extraordinary item.
Which of the following is not included in paid-in capital?a. Common Stock.b. Paid-In Capital—Donations.c. Stock Dividend Distributable.d. Appropriation per Loan Agreement.
Bevins Company issued 10,000 shares of \(\$ 20\) par value common stock at \(\$ 24\) per share. Bevins reacquired 1,000 shares of its own stock at a cost of \(\$ 30\) per share. The entry to record the reacquisition is: a. Premium or Treasury Stock Treasury Stock 10,000 20,000 Cash 30,000 b.
If the company reissues 500 shares of the treasury stock in (2) for \(\$ 36\) per share, the entry is: a. Cash Treasury Stock Paid-In Capital- Treasury Stock Transactions 18,000 15,000 3,000 b. Cash 18,000 Treasury Stock 18,000
Treasury stock should be shown on the balance sheet as a:a. Reduction of the corporation's stockholders' equity.b. Current asset.c. Current liability.d. Investment asset.
An individual stockholder is entitled to receive any dividends declared on stock owned, provided the stock is held on the:a. Date of declaration.b. Date of record.c. Date of payment.d. Last day of a fiscal year.
ABC Corporation declared the regular quarterly dividend of \(\$ 2\) per share. ABC had issued 12,000 shares and subsequently reacquired 2,000 shares as treasury stock. What would be the total amount of the dividend?a. \(\$ 24,000\).b. \(\$ 28,000\).c. \(\$ 20,000\).d. \(\$ 4,000\).
Which item is not reported as a separate line item below income from continuing operations, net of tax effects, in the income statement?a. Extraordinary items.b. Prior period adjustments.c. Discontinued operations.d. Changes in accounting principle.
What are the two main elements of stockholders' equity in a corporation? Explain the difference between them.
Name several sources of paid-in capital. Would it suffice to maintain one account called Paid-In Capital for all sources of paid-in capital? Why or why not?
Does accounting for treasury stock resemble accounting for an asset? Is treasury stock an asset? If not, where is it properly shown on a balance sheet?
What are some possible reasons for a corporation to reacquire its own capital stock as treasury stock?
What is the purpose underlying the statutes that provide for restriction of retained earnings in the amount of the cost of treasury stock? Are such statutes for the benefit of stockholders, management, or creditors?
What is the effect of each of the following on the total stockholders' equity of a corporation: (a) declaration of a cash dividend, \((b)\) payment of a cash dividend already declared, (c) declaration of a stock dividend, and \((d)\) issuance of a stock dividend already declared?
The following dates are associated with a cash dividend of \(\$ 80,000\) : July 15, July 31, and August 15. Identify each of the three dates, and give the journal entry required on each date, if any.
How should a declared but unpaid cash dividend be shown on the balance sheet? How should a declared but unissued stock dividend be shown?
On May 8, the board of directors of Park Corporation declared a dividend, payable on June 5, to stockholders of record on May 17. On May 10, James sold his capital stock in Park Corporation directly to Benton for \(\$ 20,000\), endorsing his stock certificate and giving it to Benton. Benton placed
What are the possible reasons for a corporation to declare a stock dividend?
Why is a dividend consisting of the distribution of additional shares of the common stock of the declaring corporation not considered income to the recipient stockholders?
What is the difference between a small stock dividend and a large stock dividend?
What are liquidating dividends?
What is the purpose of a retained earnings appropriation?
What is a statement of stockholders' equity?
Describe a discontinued operation.
What are extraordinary items? Where and how are they reported?
Give an example of a change in accounting principle. How are the effects of changes in accounting principle reported?
What are prior period adjustments? Where and how are they reported?
Why are stockholders and potential investors interested in the amount of a corporation's EPS? What does the EPS amount reveal that total earnings do not?
Real World Question From the consolidated statements of share-owners' equity of The Coca-Cola Company in the annual report booklet, identify the 1996 total dollar amount for each of the following items:a. Sales to employees exercising stock options.b. Purchase of common stock for treasury.c. Total
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, how many shares of treasury stock were on hand as of December 31, 1996?
Real World Question Based on the financial statements of The Limited, Inc., contained in the annual report booklet, what was the cost of treasury stock as of February 1, 1997?
Real World Question Based on the financial statements of John H. Harland Company contained in the annual report booklet, how many shares of treasury stock were on hand as of December 31, 1996?
The December 31, 1998, trial balance of Yamey Corporation had the following account balances:Present in proper form the stockholders' equity section of the balance sheet. Common Stock (no-par va ue; 200,000 shares authorized, issued, and outstanding, stated value of $20 per share) $4,000,000 Notes
Fogg Company has issued all of its authorized 5,000 shares of $400 par value common stock. On February 1, 1998, the board of directors declared a dividend of $12 per share payable on March 15, 1998, to stockholders of record on March 1, 1998. Give the necessary journal entrics.
The stockholders' equity section of Jay Company's balance sheet on December 31, 1998, shows 100,000 shares of authorized and issued S20 stated value common stock, of which 9,000 shares are held in the treasury. On this date, the board of directors declared a cash dividend of $2 per share payable on
Kevin Company has outstanding 75,000 shares of common stock without par or stated value, which were issued at an average price of $80 per share, and retained earnings of $3,200,000. The current market price of the common stock is $120 per share. Total authorized stock consists of 500,000 shares.a.
Grant Corporation's stockholders' equity consisted of 60,000 authorized shares of \(\$ 30\) par value common stock, of which 30,000 shares had been issued at par, and retained earnings of \(\$ 750,000\). The company then split its stock, two for one, by changing the par value of the old shares and
The balance sheet of Willis Company contains the following:a. Give the journal entry made to create this account.b. Explain the reason for the appropriation's existence and its manner of presentation in the balance sheet. Appropriation per loan agreement $900,000
Kelly Company had outstanding 50,000 shares of \(\$ 20\) stated value common stock, all issued at \(\$ 24\) per share, and had retained earnings of \(\$ 800,000\). The company reacquired 2,000 shares of its stock for cash at book value from the widow of a deceased stockholder.a. Give the entry to
Evan Company received 200 shares of its \(\$ 200\) stated value common stock on December 1, 1998, as a donation from a stockholder. On December 15, 1998, it reissued the stock for \(\$ 62,400\) cash. Give the journal entry or entries necessary for these transactions.
Vista Company has revenues of \(\$ 80\) million, expenses of \(\$ 64\) million, a tax-deductible earthquake loss (its first such loss) of \(\$ 4\) million, and a tax-deductible loss of \(\$ 6\) million resulting from the voluntary early extinguishment (retirement) of debt. The assumed income tax
Conner Company had retained earnings of \(\$ 56,000\) as of January 1, 1998. In 1998, Conner Company had sales of \(\$ 160,000\), cost of goods sold of \(\$ 96,000\), and other operating expenses, excluding taxes, of \(\$ 32,000\). In 1998, Conner Company discovered that it had, in error,
The following information relates to Perry Corporation for the year ended December 31, 1998:Calculate EPS for the year ended December 31, 1998. Present the information in the same format used in the corporation's income statement. Common stock outstanding Income from continuing operations Loss on
Dean Company had an average number of shares of common stock outstanding of 200,000 in 1998 and 215,000 in 1999. Net income for these two years was as follows:a. Calculate EPS for the years ended December 31, 1998, and 1999.b. What might the resulting figures tell a stockholder or a potential
The trial balance of Dex Corporation as of December 31, 1998, contains the following selected balances:Present the stockholders' equity section of the balance sheet as of December 31, 1998. Notes Payable (17%, due May 1, 2000) Allowance for Uncollectible Accounts. $4,000,000 60,000 Common Stock
The stockholders' equity section of Carson Company's December 31, 1997, balance sheet follows:On July 15, 1998, the board of directors declared a cash dividend of $12 per share, which was paid on August 1, 1998. On December 1, 1998, the board declared a stock dividend of 10%, and the shares were
The ledger of Falcone Company includes the following account balances on September 30, 1998:During October 1998, the company took action to: 1. Increase the appropriation for contingencies by $60,000. 2. Decrease the appropriation for plant expansion by $160,000. 3. Establish an appropriation per
Following are selected transactions of Taylor Corporation:Required Prepare journal entries to record all of these transactions. 1993 Dec. 31 By action of the board of directors, $450,000 of retained earnings was appropriated to provide for future expansion of the company's main building.
\section*{The following information relates to Dahl Corporation for the year 1998:}Prepare a statement of retained earnings for the year ended December 31, 1998. Net income for the year Dividends declared on common stock Dividends declared on preferred stock Retained earnings, January 1,
The stockholders' equity of Acorn Company as of December 31, 1997, consisted of 20,000 shares of authorized, issued, and outstanding \(\$ 50\) par value common stock, paid-in capital in excess of par of \(\$ 240,000\), and retained earnings of \(\$ 400,000\). Following are selected transactions for
The stockholders' equity section of Sager Company's December 31, 1997, balance sheet follows:a. Prepare journal entries to record the 1998 transactions,b. Prepare a statement of retained earnings for the year 1998, assuming net income for the year was \(\$ 25,800\).c. Prepare the stockholders'
Selected data of Ace Company for the year ended December 31, 1998, are:Assume the applicable federal income tax rate is \(40 \%\). All of the preceding items of expense, revenue, and loss are included in the computation of taxable income. The litigation loss resulted from a court award of damages
The bookkeeper of Hart Company has prepared the following incorrect statement of stockholders' equity for the year ended December 31, 1998 :The authorized stock consists of 12,000 shares of preferred stock with a \(\$ 120\) par value and 75,000 shares of common stock, \(\$ 48\) par value. The
The only stockholders' equity items of Jody Company at June 30, 1998, are:On August 4, 1998, a 4\% cash dividend was declared, payable on September 3. On November 16 , a \(10 \%\) stock dividend was declared. The shares were issued on December 1. The market value of the common stock was \(\$ 360\)
Following are selected transactions of White Corporation:Required Prepare journal entries for all of these transactions. 1991 Dec. 31 The board of directors authorized the appropriation of $50,000 of retained earnings to provide for the future acquisition of a new plant site and the construction of
Following are selected data of Kane Corporation at December 31, 1998:Prepare a statement of retained earnings for the year ended December 31, 1998. Net income for the year $512,000 Dividends declared on preferred stock 72,000 Retained earnings appropriated during the year for future plant
The stockholders' equity of Sayers Company at January 1, 1998, is as follows:During 1998, the following transactions occurred in the order listed:1. Issued 10,000 shares of stock for \(\$ 368,000\).2. Declared a \(4 \%\) stock dividend when the market price was \(\$ 48\) per share.3. Sold 1,000

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