Resources:Ch. 11 & 12 ofFinancial Accounting

CompleteExercises E11-15, E12-1, & E12-2.

CompleteProblem 11-6A.

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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. E12-1 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 Provide answers for Max. E12-2 Foren Corporation had the following transactions pertaining to debt investments. 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. July 1 Received semiannual interest on Choate Co. bonds. July 1 Sold 30 Choate Co. bonds for $34,000 less $500 brokerage fees. Instructions (a) Journalize the transactions. (b) Prepare the adjusting entry for the accrual of interest at December 31. P12-6A The following data, presented in alphabetical order, are taken from the records of Urbina Corporation. Accounts payable $ 240,000 Accounts receivable 140,000 Accumulated depreciationbuilding 180,000 Accumulated depreciationequipment 52,000 Allowance for doubtful accounts 6,000 Bonds payable (10%, due 2019) 500,000 Buildings 950,000 Cash 42,000 Common stock ($10 par value; 500,000 shares authorized, 150,000 shares issued) 1,500,000 Dividends payable 80,000 Equipment 275,000 Goodwill 200,000 Income taxes payable 120,000 Investment in Flott common stock (10% ownership), at cost 278,000 Investment in Portico common stock (30% ownership), at equity 380,000 Land 390,000 Market adjustmentavailable-for-sale securities (Dr) 8,000 Merchandise inventory 170,000 Notes payable (due 2012) 70,000 Paid-in capital in excess of par value 130,000 Premium on bonds payable 40,000 Prepaid insurance 16,000 Retained earnings 103,000 Short-term stock investment, at fair value (and cost) 180,000 Unrealized gainavailable-for-sale securities 8,000 The investment in Flott common stock is considered to be a long-term available-for-sale security. Instructions Prepare a classified balance sheet at December 31, 2011. (a) Loss on sale of preferred stock $1,560 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 ValuePreferred 56,000 Common Stock 2,000,000 Paid-in Capital in Excess of Stated ValueCommon 5,700,000 Treasury StockCommon (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. (c) Unrealized loss $7,480 Total assets $2,791,000