ACC 291 Week 4 Answers

ACC 291 Week 4: Do-It 11-1, E11-15, E11-16, P11-6A, P11-8A

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Format: Microsoft Excel

Textbook: Financial Accounting, Seventh Edition

Do-It 11-1

dicate whether each of the following statements is true or false.

_____ 1. The corporation is an entity separate and distinct from its owners.
_____ 2. The liability of stockholders is normally limited to their investment in the corporation.
_____ 3. The relative lack of government regulation is an advantage of the corporate form of business.
_____ 4. There is no journal entry to record the authorization of capital stock.
_____ 5. No-par value stock is quite rare today.

Analyze statements about corporate organization.

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.

Compare effects of a stock dividend and a stock split.

E11-16

Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.

  1. The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
  2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividends Payable (Cr.) $10,000. The shares have not been issued.
  3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.

Instructions

Prepare the correcting entries at December 31.

Prepare correcting entries for dividends and a stock split.

 Full tutorial for the following problems: Do-It 11-1, E11-15, E11-16, P11-6A, P11-8A

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 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.

Prepare entries for stock transactions and stockholders’ equity section.

P11-8A

The following stockholders’ equity accounts arranged alphabetically are in the ledger of McGrath Corporation at December 31, 2011.

Common Stock ($10 stated value) $1,500,000
Paid-in Capital from Treasury Stock 6,000
Paid-in Capital in Excess of Stated Value—Common Stock 690,000
Paid-in Capital in Excess of Par Value—Preferred Stock 288,400
Preferred Stock (8%, $100 par, noncumulative) 400,000
Retained Earnings 776,000
Treasury Stock—Common (8,000 shares) 88,000

Prepare stockholders’ equity section; compute book value per share.

Instructions

  1. Prepare a stockholders’ equity section at December 31, 2011.
  2. Compute the book value per share of the common stock, assuming the preferred stock has a call price of $110 per share.

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