LO 14.1You are a CPA who has been hired by DEF Company to assist with their initial public offering. Prepare a memo to the president of DEF outlining the steps you will take to launch the IPO.
LO 14.1You are a CPA who has been hired by DEF Company to assist with their incorporation process. Prepare a memo to the president of DEF explaining the different statuses of shares of stock: authorized shares, issued shares, outstanding shares, and treasury shares.
LO 14.1You are a CPA who has been hired by DEF Company to assist with their initial public offering. Prepare a memo to the president of DEF outlining the two most significant values, market value and par value, associated with stock.
LO 14.2Wingra Corporation was organized in March. It is authorized to issue 500,000 shares of $100 par value 8% preferred stock. It is also authorized to issue 750,000 shares of $1 par value common stock. In its first year, the corporation has the following transactions:
| Mar. 1 | Issued 10,000 shares of preferred stock at $115 per share |
| Mar. 2 | Issued 120,000 shares of common stock at $12.50 per share |
| Apr. 10 | Issued 15,000 shares of common stock for equipment valued at $196,000. The stock is currently trading at $12 per share, and is a more reliable indicator of the value of the equipment. |
| Jun. 12 | Issued 10,000 shares of common stock at $15 per share |
| Aug. 5 | Issued 1,000 shares of preferred stock at $112 per share |
Journalize the transactions.
LO 14.2Copper Corporation was organized in May. It is authorized to issue 50,000,000 shares of $200 par value 7% preferred stock. It is also authorized to issue 75,000,000 shares of $5 par value common stock. In its first year, the corporation has the following transactions:
| May 1 | Issued 1,000 shares of preferred stock for cash at $250 per share |
| May 23 | Issued 2,000 shares of common stock at $15.50 per share |
| Jun. 10 | Issued 15,000 shares of common stock for equipment without a readily determinable value. The stock is currently trading at $15 per share. |
Journalize the transactions.
LO 14.2EllaJane Corporation was organized several years ago and was authorized to issue 4,000,000 shares of $50 par value 6% preferred stock. It is also authorized to issue 1,750,000 shares of $1 par value common stock. In its fifth year, the corporation has the following transactions:
| Mar. 1 | Purchased 1,000 shares of its own common stock at $11 per share |
| Apr. 10 | Reissued 500 shares of its common stock held in the treasury for $15 per share. |
| Jun. 12 | Reissued 500 shares of common stock at $9 per share |
Journalize the transactions.
LO 14.3Aggregate Mining Corporation was incorporated five years ago. It is authorized to issue 500,000 shares of $100 par value 8% preferred stock. It is also authorized to issue 750,000 shares of $1 par value common stock. It has issued only 50,000 of the common shares and none of the preferred shares. In its sixth year, the corporation has the following transactions:
| Mar. 1 | Declares a cash dividend of $2 per share |
| Mar. 30 | Pays the cash dividend |
| Jul. 10 | Declares a 5% stock dividend when the stock is trading at $15 per share |
| Aug. 5 | Issues the stock dividend |
Journalize these transactions.
LO 14.3Aggregate Mining Corporation was incorporated five years ago. It is authorized to issue 500,000 shares of $100 par value 8% preferred stock. It is also authorized to issue 750,000 shares of $1 par value common stock. It has issued only 50,000 of the common shares and none of the preferred shares. In its seventh year, the corporation has the following transactions:
| Mar. 1 | Declares a cash dividend of $5 per share |
| Mar. 30 | Pays the cash dividend |
| Jul. 10 | Declares a property dividend of 1/2 ton of limestone per share when the price of limestone is $25 per ton |
Journalize these transactions.
LO 14.3Aggregate Mining Corporation was incorporated five years ago. It is authorized to issue 500,000 shares of $100 par value 8% cumulative preferred stock. It is also authorized to issue 750,000 shares of $6 par value common stock. It has issued 50,000 of the common shares and 1,000 of the cumulative preferred shares. The corporation has never declared a dividend and the preferred shares are one years in arrears. Aggregate Mining has the following transactions this year:
| Mar. 1 | Declares a cash dividend of $20,000 |
| Mar. 30 | Pays the cash dividend |
| Jul. 10 | Declares a 3-for-1 stock split of its common shares |
Journalize these transactions. For the stock split, show the calculation for how many shares are outstanding after the split and the par value per share after the split
LO 14.4The board of directors is interested in investing in a new technology. Appropriating existing retained earnings is a choice for funding the new technology. You are a consultant to the board. How would you explain this option to the board members so that they could make an educated decision?
LO 14.4You are a consultant for several emerging, high-growth technology firms that were started locally and have been a part of a business incubator in your area. These firms start out as sole proprietorships but quickly realize the need for more capital and often incorporate. One of the common questions you are asked is about stockholder’s equity. Explain the characteristics and functions of the retained earnings account and how the account is different from contributed capital.
LO 14.4You are the accountant for Kamal Fabricating, Inc. and you oversee the preparation of financial statements for the year just ended 6/30/2020. You have the following information from the company’s general ledger and other financial reports (all balances are end-of-year except for those noted otherwise:
Prepare the company’s Statement of Retained Earnings.
LO 14.5You have some funds that you would like to invest. Do some internet research to find two publicly traded companies in the same industry and compare their earnings per share. Would the earnings per share reported by each company influence your decision in selecting which company to invest in?
LO 14.5You are a consultant working with various companies that are considering incorporating and listing shares on a stock exchange. Explain the importance of the EPS calculation to financial analysts who follow companies on the stock exchanges.