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Chapter 13: Q2TI (page 680)
London Corporation has two classes of stock: Common, \(1 par value; and Preferred, \)4 par value. Journalize the issuance of 10,000 shares of common stock for $8 per share.
Cash debited by $80,000 and Common stock credited by $80,000.
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Question: Accounting for cash dividends
Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.
Requirements
2. Journalize for Java the entry paying the cash dividends on January 4, 2019.
Analyzing the effect of prior-period adjustments
Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.
Requirements
1. Determine the effect of the error on the accounting equation in 2018.
What is treasury stock? What type of account is Treasury Stock, and what is the account’s normal balance?
Journalizing treasury stock transactions and reporting stockholders’ equity
Southern Amusements Corporation had the following stockholders’ equity on
November 30:
Paid-In Capital:
Common Stock—\(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250
Retained Earnings50,000
Total Stockholders’ Equity \) 55,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 3,750
Total Paid-In Capital
\(5,000
On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.
Requirements
3. How many shares of common stock are outstanding after the purchase oftreasury stock?
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of \(350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
3. If they decide to issue \)5 par common stock and anticipate an initial market price of \(20 per share, how many shares will they need to issue to raise \)2,750,000?
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