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Exam 11: Corporations: Organization,stock Transactions,and Dividends

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Question 1

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On April 10,Maranda Corporation issued for cash 11,000 shares of no-par common stock at $25.On May 5,Maranda issued at par 1,000 shares of 4%,$50 par preferred stock for cash.On May 25,Maranda issued for cash 15,000 shares of 4%,$50 par preferred stock at $55. Journalize the entries to record the April 10,May 5,and May 25 transactions.

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Question 2

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A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9.Subsequently,the company declared a 2% stock dividend on a date when the market price was $10 a share.The effect of the declaration and issuance of the stock dividend is to

A) decrease retained earnings,increase common stock,and increase paid-in capital
B) increase retained earnings,decrease common stock,and decrease paid-in capital
C) increase retained earnings,decrease common stock,and increase paid-in capital
D) decrease retained earnings,increase common stock,and decrease paid-in capital

E) A) and B)
F) C) and D)

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Question 3

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A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose.

Sabas Company has 20,000 shares of $100 par,2% cumulative preferred stock and 100,000 shares of $50 par common stock.The following amounts were distributed as dividends: $\begin{array}{rr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array}$ Determine the dividends per share for preferred and common stock for the second year.

Firefly,Inc.reported the following results for the year ending July 31: $\begin{array}{|l|r|}\hline \text { Retained earnings, August 1 } & \$ 875,000 \\\hline \text { Net income } & 450,000 \\\hline \text { Cash dividends declared } & 140,000 \\\hline \text { Stock dividends declared } & 60,000 \\\hline\end{array}$ Prepare a retained earnings statement for the fiscal year ended July 31.

The reduction in the par or stated value of common stock,accompanied by the issuance of a proportionate number of additional shares,is called a stock split.

Which of the following is not true of a corporation?

Prepare entries to record the following selected transactions completed during the current fiscal year: Feb. 1 The board of directors declared a stock split which reduced the par of common shares from $100 to $20. This action increased the number of outstanding shares to 500,000. $\quad$ 11 Purchased 25,000 shares of the company's own stock at $44, recording the treasury stock at cost. May 1 Declared a dividend of $2.50 per share on the outstanding shares of common stock. $\quad$ 15 Paid the dividend declared on May 1. Oct. 19 Declared a 2% stock dividend on the common stock outstanding the fair market value of the stock to be issued is $55. Nov. 12 Issued the certificates for the common stock dividend declared on October 19.

Sabas Company has 20,000 shares of $100 par,2% cumulative preferred stock and 100,000 shares of $50 par common stock.The following amounts were distributed as dividends: $\begin{array}{rr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array}$ Determine the dividends per share for preferred and common stock for the third year.

At December 31, Idaho Company had the following ending account balances: Retained Earnings: $250,000 Preferred Stock $100 par, 7% cumulative, 10,000 authorized, 5,000 issued and outstanding: $500,000 Treasury Stock: $40,000 Paid­In Capital in Excess of Par—Common Stock: $625,000 Paid­In Capital in Excess of Par—Preferred Stock: $50,000 Common Stock $5 par value, 500,000 shares authorized, 105,000 issued: $525,000 Prepare the stockholders' equity section of the balance sheet in good form with all of the required disclosures.

Sabas Company has 20,000 shares of $100 par,2% cumulative preferred stock and 100,000 shares of $50 par common stock.The following amounts were distributed as dividends: $\begin{array}{rr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array}$ Determine the dividends per share for preferred and common stock for the first year.

If paid-in-capital in excess of par/preferred stock is $30,000,preferred stock is $200,000,paid-in capital in excess of par/common stock is $20,000,common stock is $525,000,and retained earnings is $105,000 deficit,the total stockholders' equity is $880,000.

The declaration of a stock dividend decreases a corporation's stockholders' equity and increases its liabilities.

Which statement below is not a reason for a corporation to buy back its own stock?

A corporation was organized on January 1 of the current year, with an authorization of 20,000 shares of 4%, $12 par preferred stock, and 100,000 shares of $3 par common stock. The following selected transactions were completed during the first year of operations: Jan. 3 $\quad$ Issued 15,000 shares of common stock at $23 per share for cash. 31 $\quad$$\quad$ Issued 200 shares of common stock to an attorney in payment of legal fees for organizing the corporation. The value of the stock at the time of payment was $25 per share. Feb. 24 $\quad$ Issued 20,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $65,000, $120,000, and $45,000 respectively. Mar. 15 $\quad$ Issued 2,000 shares of preferred stock at $56 for cash.

The net increase or decrease in Retained Earnings for a period is recorded by closing entries.

A corporation is a separate entity for accounting purposes but not for legal purposes.

A company had stock outstanding as follows during each of its first three years of operations: 2,500 shares of 10%, $100 par, cumulative preferred stock and 50,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per-share dividends for each class of stock for each year by completing the schedule.

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders' equity.