Exercise Set B

LO 14.1Your high school friend started a business that has blossomed over the years, and she is considering incorporating so she can sell shares of stock and expand. She has asked you for help understanding the process she will need to undertake. How do you explain the process of incorporation to her?

LO 14.1You are an accountant working for a manufacturing company that makes personal care products and has recently decided to incorporate. The company incurred a total of $7,900 for attorney’s fees, promotion costs, and filing fees with the state of incorporation as a part of organizing the corporate entity. What is the journal entry to record these costs on February 28, assuming they are paid in cash?

LO 14.1What is the impact on stockholders’ equity when a company uses equity financing as a source of funding?

LO 14.1What is the biggest disadvantage to be considered when exploring the option of equity financing versus debt financing?

LO 14.1Your high school friend started a business that has blossomed over the years, and he is considering incorporating so he can sell shares of stock and expand. He has asked you for help understanding the costs of incorporating. What are some of the costs that he will face as he organizes the corporation and begins to sell shares of stock?

LO 14.2Spring Company is authorized to issue 500,000 shares of $2 par value common stock. In its first year, the company has the following transactions:

Journalize the transactions and calculate how many shares of stock are outstanding at August 3.

LO 14.2Silva Company is authorized to issue 5,000,000 shares of $2 par value common stock. In its IPO, the company has the following transaction: Mar. 1, issued 500,000 shares of stock at $15.75 per share for cash to investors. Journalize this transaction.

LO 14.2Juniper Company is authorized to issue 5,000,000 shares of $2 par value common stock. In conjunction with its incorporation process and the IPO, the company has the following transaction: Mar. 1, issued 4,000 shares of stock in exchange for equipment worth $250,000. Journalize the transaction.

LO 14.2Vishnu Company is authorized to issue 500,000 shares of $2 par value common stock. In conjunction with its incorporation process and the IPO, the company has the following transaction: Apr. 10, issued 1,000 shares of stock for legal services valued at $15,000. Journalize the transaction.

LO 14.2Ammon Company is authorized to issue 500,000 shares of $5 par value preferred stock. In its first year, the company has the following transaction: Mar. 1, issued 40,000 shares of preferred stock at $20.50 per share. Journalize the transaction.

LO 14.3Nutritious Pet Food Company’s board of directors declares a small stock dividend (20%) on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of $1 par value common stock outstanding (none held in treasury). What is the journal entry to record the stock dividend distribution on July 31?

LO 14.3Nutritious Pet Food Company’s board of directors declares a large stock dividend (50%) on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of $1 par value common stock outstanding (none held in treasury). What is the journal entry to record the declaration of the dividend?

LO 14.3Nutritious Pet Food Company’s board of directors declares a large stock dividend (50%) on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of $1 par value common stock outstanding (none held in treasury). What is the journal entry to record the stock dividend distribution on July 31?

LO 14.3Nutritious Pet Food Company’s board of directors declares a 2-for-1 stock split on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of $1 par value common stock outstanding (none held in treasury). What is the new par value of the shares and how many shares are outstanding after the split?

LO 14.3Nutritious Pet Food Company’s board of directors declares a 2-for-1 stock split on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of $1 par value common stock outstanding (none held in treasury). What is the new par value of the shares and how many shares are outstanding after the split? What is the total amount of equity before and after the split?

LO 14.4Birmingham Company has been in business for five years. Last year, it experienced rapid growth and hired a new accountant to oversee the physical assets and record acquisitions and depreciation. This year, the controller discovered that the accounting records were not in order when the new accountant took over, and a $3,000 depreciation entry was omitted resulting in depreciation expense being understated last year. How does the company make this type of correction and where is it reported?

LO 14.4Chelsea Company is a sole proprietorship. Ashley, Incorporated is a corporation. Which company would report stockholder’s equity and retained earnings and not simply owner’s equity? Why? What is the difference between these accounts?

LO 14.4Tart Restaurant Holdings, Incorporated began the year with a retained earnings balance of $950,000. The company paid a total of $14,000 in dividends and experienced a net loss of $20,000 this year. What is the ending retained earnings balance?

LO 14.4Josue Fabricating, Inc.’s accountant has the following information available to prepare the Statement of Stockholder’s Equity for the year just ended.

What is the total balance on the company’s Statement of Stockholder’s Equity? What is the amount of the contributed capital?

LO 14.4Trumpet and Trombone Manufacturing, Inc. began the year with a retained earnings balance of $545,000. The company had a great year and earned a net income of $190,000 this year and paid dividends of $14,000. Additionally, the company’s controller determined that it had made an error when calculating tax expense in the preceding year, resulting in an understated expense amount of $22,000. What is the ending retained earnings balance?

LO 14.5Brunleigh Corporation earned net income of $200,000 this year. The company began the year with 10,000 shares of common stock and issued 5,000 more on April 1. They issued $7,500 in preferred dividends for the year. What is Brunleigh Corporation’s weighted average number of shares for the year?

LO 14.5Errol Corporation earned net income of $200,000 this year. The company began the year with 10,000 shares of common stock and issued 5,000 more on April 1. They issued $7,500 in preferred dividends for the year. What is the numerator of the EPS calculation for Errol?

LO 14.5Bastion Corporation earned net income of $200,000 this year. The company began the year with 10,000 shares of common stock and issued 5,000 more on April 1. They issued $7,500 in preferred dividends for the year. What is the EPS for the year for Bastion?