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ACC291 Week 4 Do it 11-1 E11-15 E11-16 P11-6A P11-8A

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• Exercise Do It! 11-1
• Exercise E11-15
• Exercise E11-16
• Problem P11-6A
• Problem P11-8A

Question 1
Indicate 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
_____ 4. There is no journal entry to record the authorization of capital stock.
_____ 5. No-par value stock is quite rare today

Question 2
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.

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.

Question 3
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.


Prepare the correcting entries at December 31

Question 4
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.

(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.

Question 5
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

(a) Prepare a stockholders’ equity section at December 31, 2011.
(b) 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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