MODULE 6 Liabilities and Owners' Equity - Bonds

Demonstration Problem 1 Plymouth Corporation Plymouth Corporation issued $200,000 of 9%, five-year bonds at 99 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. Plymouth Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal. Transactions for 2000 Jan. 1 Issued $200,000 of 5-year, 9% bonds at 99. Interest is paid on January 1 and July 1. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Transactions for 2001 Jan. 1 Recorded the interest payment. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Journal Entries for 2000 Transaction number 1 2 3 DATE 2000 Jan. 1 Jul. 1 Dec. 31 ACCOUNT Cash Discount on Bonds Payable Bonds Payable Interest Expense Cash Discount on Bonds Payable Interest Expense Interest Payable Discount on Bonds Payable DEBIT 198,000 2,000 200,000 9,200 9,000 200 9,200 9,000 200 CREDIT

Semi-annual interest payment = $200,000 x 0.09 x 0.5 = $9,000 The total discount of $2,000 is amortized over 5 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $2,000 /10= $200 Journal Entries for 2001 Transaction number 1 2 3 DATE 2001 Jan. 1 Jul. 1 Dec. 31 ACCOUNT Interest Payable Cash Interest Expense Cash Discount on Bonds Payable Interest Expense DEBIT 9,000 9,000 9,200 9,000 200 9,200 CREDIT

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Interest Payable Discount on Bonds Payable

9,000 200

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Practice Problem 1 Antine Corporation Antine Corporation issued $240,000 of 9%, three-year bonds at 99 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization. Date Jan. 1, 2000 Jul. 1, 2000 Dec. 31, 2000 Jul. 1, 2001 Dec. 31, 2001 Jul. 1, 2002 Dec. 31, 2002 Interest Expense 11,200 11,200 11,200 11,200 11,200 11,200 Amortization of Discount 400 400 400 400 400 400 Discount 2,400 2,000 1,600 1,200 800 400 0 Carrying Value of Bond 237,600 238,000 238,400 238,800 239,200 239,600 240,000

Semi-annual interest payment = $240,000 x 0.09 x 0.5 = $10,800 The total discount of $2,400 is amortized over 3 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $2,400 /6= $400 Thus the discount decreases by $400 and the carrying value increases by $400 every six months. Thus, interest expense for each period = $10,800 + $400 = $11,200.

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Practice Problem 2 Amaral Corporation Amaral Corporation issued $100,000 of 10-year, 10% bonds at 104 on January 1, 2000. Interest is payable on January 1 and July 1. Amaral Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal. Transactions for 2000 Jan. 1 Issued $100,000 of 10%, 10-year bonds at 104. Interest is paid on January 1 and July 1. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Transactions for 2001 Jan. 1 Recorded the interest payment. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Journal Entries for 2000 DATE 2000 Jan. 1 ACCOUNT DEBIT CREDIT

Cash 104,000 Bonds Payable 100,000 Premium on Bonds Payable 4,000 Jul. 1 Interest Expense 4,800 Premium on Bonds Payable 200 Cash 5,000 Dec. 31 Interest Expense 4,800 Premium on Bonds Payable 200 Interest Payable 5,000 Semi-annual interest payment = $100,000 x 0.1 x 0.5 = $5,000 The total premium of $4,000 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $4,000 /20 = $200 Journal Entries for 2001 DATE 2001 Jan. 1 Jul. 1 Dec. 31 ACCOUNT Interest Payable Cash Interest Expense Premium on Bonds Payable Cash Interest Expense Premium on Bonds Payable Interest Payable DEBIT 5,000 5,000 4,800 200 5,000 4,800 200 5,000 CREDIT

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Homework Problem 1 Pelletier Corporation Pelletier Corporation issued $300,000 of 8%, three-year bonds at 95 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. The fiscal year ends on December 31. Interest expense is recorded on July 1 and December 31 of each year. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization. Date Interest Expense Amortization of Discount Discount Carrying Value 285,000 287,500 290,000 292,500 295,000 297,500 300,000

Jan. 1, 2000 15,000 Jul. 1, 2000 14,500 2,500 12,500 Dec. 31, 2000 14,500 2,500 10,000 Jul. 1, 2001 14,500 2,500 7,500 Dec. 31, 2001 14,500 2,500 5,000 Jul. 1, 2002 14,500 2,500 2,500 Dec. 31, 2002 14,500 2,500 0 Semi-annual interest payment = $300,000 x 0.08 x 0.5 = $12,000 The total discount of $15,000 is amortized over 3 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $15,000/6 = $2,500 Interest expense = $12,000 + $2,500 = $14,500 Homework Problem 2 Vincent Corporation Vincent Corporation issued $150,000 of 9%, three-year bonds at 101 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. The fiscal year ends on December 31. Interest expense is recorded on July 1 and December 31 of each year. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization. Date Interest Expense Amortization of Premium Premium Carrying Value 151,500 151,250 151,000 150,750 150,500 150,250 150,000

Jan. 1, 2000 1,500 Jul. 1, 2000 6,500 250 1,250 Dec. 31, 2000 6,500 250 1,000 Jul. 1, 2001 6,500 250 750 Dec. 31, 2001 6,500 250 500 Jul. 1, 2002 6,500 250 250 Dec. 31, 2002 6,500 250 0 Semi-annual interest payment = $150,000 x 0.09 x 0.5 = $6,750 The total premium of $1,500 is amortized over 3 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $1,500/6 = $250. Interest expense = $6,750 - $250 = $6,500.

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Homework Problem 3 Jackson Corporation Jackson Corporation issued $250,000 of 10-year, 8% bonds at 103 on January 1, 2000. Interest is payable on January 1 and July 1. Jackson Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001. Transactions for 2000 Jan. 1 Issued $250,000 of 10-year, 8% bonds at 103. Interest is paid on January 1 and July 1. Jul. 31 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Transactions for 2001 Jan. 1 Recorded the interest payment. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Journal Entries for 2000 Transaction number 1 DATE 2000 Jan. 1 ACCOUNT DEBIT CREDIT

Cash 257,500 Bonds Payable 250,000 Premium on Bonds Payable 7,500 2 Jul. 1 Interest Expense 9,625 Premium on Bonds Payable 375 Cash 10,000 3 Dec. 31 Interest Expense 9,625 Premium on Bonds Payable 375 Interest Payable 10,000 Semi-annual interest payment = $250,000 x 0.08 x 0.5 = $10,000 The total premium of $7,500 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $7,500/20= $375 Journal Entries for 2001 Transaction number 1 2 3 DATE 2001 Jan. 1 Jul. 1 Dec. 31 ACCOUNT Interest Payable Cash Interest Expense Premium on Bonds Payable Cash Interest Expense Premium on Bonds Payable Interest Payable DEBIT 10,000 10,000 9,625 375 10,000 9,625 375 10,000 CREDIT

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Homework Problem 4 Glaser Corporation filename: M6T1G4.html Glaser Corporation issued $500,000 of 10-year, 8% bonds at 98 on January 1, 2000. Interest is payable on January 1 and July 1. Glaser Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001. Transactions for 2000 Jan. 1 Issued $500,000 of 10-year, 8% bonds at 98. Interest is paid on January 1 and July 1. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds Transactions for 2001 Jan. 1 Recorded the interest payment. Jul. 1 Recorded the interest payment. Dec. 31 Recorded the accrued interest on the bonds. Journal Entries for 2000 DATE 2000 Jan. 1 ACCOUNT DEBIT CREDIT

Cash 490,000 Discount on Bonds Payable 10,000 Bonds Payable 500,000 Jul. 1 Interest Expense 20,500 Cash 20,000 Discount on Bonds Payable 500 Dec. 31 Interest Expense 20,500 Interest Payable 20,000 Discount on Bonds Payable 500 Semi-annual interest payment = $500,000 x 0.08 x 0.5 = $20,000 The total discount of $10,000 is amortized over 10 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $10,000/20 = $500 Journal Entries for 2001 DATE 2001 Jan. 1 Jul. 1 Dec. 31 ACCOUNT Interest Payable Cash Interest Expense Cash Discount on Bonds Payable Interest Expense Interest Payable Discount on Bonds Payable DEBIT 20,000 20,000 20,500 20,000 500 20,500 20,000 500 CREDIT

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Homework Quiz Bonds

1. When a bond's stated rate of interest is higher than the market rate of interest, the bond will sell at: a. a premium b. its face value c. its maturity value d. a discount 2. When a bond's stated rate of interest is lower than the market rate of interest, the bond will sell at: a. a premium b. its face value c. its maturity value d. a discount 3. When the market rate of interest for bonds is higher than a bond's stated rate of interest, the bond will sell at: a. a premium b. its face value c. its maturity value d. a discount 4. $1,000,000 of 10% bonds is issued at 102 1/2. What is the amount of cash received from the sale? a. $25,000 b. $975,000 c. $1,025,000 d. $1,000,000 5. $4,000,000 of 12% bonds are issued at 101. What is the amount of cash received from the sale? a. $4,040,000 b. $4,000,000 c. $4,080,000 d. $3,520,000 6. $1,000,000 of 10% bonds is issued at 94. What is the amount of cash received from the sale? a. $60,000 b. $940,000 c. $960,000 d. 1,000,000 7. $4,000,000 of 12% bonds are issued at 92 1/2. What is the amount of cash received from the sale? a. $3,700,000 b. $4,000,000 c. $4,100,000 d. $4,300,000 8. Angelina Corporation just issued bonds. The stated rate of interest is greater than the market rate. The proper entry to record this transaction is: a. Debit, Bonds Payable; Credit, Cash b. Debit, Cash and Discount on Bonds Payable; Credit, Bonds Payable c. Debit, Cash; Credit Premium on Bonds Payable and Bonds Payable d. Debit, Cash; Credit, Bonds Payable

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9. Angelina Corporation just issued bonds. The stated rate of interest is less than the market rate. The proper entry to record this transaction is: a. Debit, Bonds Payable; Credit, Cash <br> b. Debit, Cash and Discount on Bonds Payable; Credit, Bonds Payable <br> c. Debit, Cash; Credit Premium on Bonds Payable and Bonds Payable <br> d. Debit, Cash; Credit, Bonds Payable <br> 10. Angelina Corporation just issued bonds at a premium. The entry to record the semiannual payment of interest is: a. Debit, Premium on Bonds Payable and Interest Expense; Credit, Cash b. Debit, Interest Expense; Credit, Premium on Bonds Payable and Cash c. Debit, Interest Expense; Credit, Cash d. Debit, Bonds Payable; Credit, Interest Expense Angelina Corporation just issued bonds at a discount. The entry to record the semiannual payment of interest is: a. Debit, Discount on Bonds Payable and Interest Expense; Credit, Cash b. Debit, Interest Expense; Credit, Discount on Bonds Payable and Cash c. Debit, Interest Expense; Credit, Cash d. Debit, Bonds Payable; Credit, Interest Expense Angelina Corporation employs the straight-line method for amortization of bond premium/discount. Which of the following statements is true? a. Annual interest expense will increase over the life of the bond with the amortization of bond premium. b. Annual interest expense will remain the same over the life of the bond with the amortization of bond discount. c. Annual interest expense will decrease over the life of the bond with the amortization of bond discount. d. Annual interest expense will increase over the life of the bond with the amortization of bond discount. Angelina Corporation employs the straight-line method for amortization of bond premium/discount. Which of the following statements is true? a. The annual interest expense and the premium amortization will increase over the life of the bonds for the amortization of bond premium. b. The annual interest expense and the discount amortization will decrease over the life of the bonds for the amortization of bond discount. c. The annual interest expense and the premium amortization will be the same over the life of the bonds for the amortization of bond premium. d. The annual interest expense will increase and the discount amortization will decrease over the life of the bonds for the amortization of bond discount. Jolina Corporation recently issued $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. Jolina utilizes the straight-line method for amortizing bond discount/premium. Which of the following statements is true? a. The amount of the annual interest expense is computed at 10% of the bond-carrying amount at the beginning of the year. b. The amount of the annual interest expense gradually decreases over the life of the bonds. c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. d. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.

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Jolina Corporation recently issued $500,000 of 11%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 10%. Jolina utilizes the straight-line method for amortizing bond discount/premium. Which of the following statements is true? a. The amount of the annual interest expense is computed at 11% of the bond-carrying amount at the beginning of the year. b. The amount of the annual interest expense gradually increases over the life of the bonds. c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. d. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity. Weltech Corporation recently issued $200,000, 12%, 10-year bonds. Premium on the issue amounted to $25,000. Interest is paid semiannually. Weltech uses the straight-line method. The amount of premium to be amortized each interest period will be: a. $ 1,250 b. $ 2,500 c. $ 5,000 d. Some other amount Weltech Corporation issued $100,000 of 20-year, 6 percent bonds on January 1, 2001. The issue yielded $112,550.40 in cash. Interest payment dates on the bonds are January 1 and July 1. When using the straight-line method, the amount of premium to be amortized on July 1, 2001 is: a. $ 627.60 b. $ 313.76 c. $1,553.00 d. $ 186.22 Weltech Corporation issued $100,000 of 20-year, 6 percent bonds on January 1, 2001. The issue yielded $87,449.60 in cash. Interest payment dates on the bonds are January 1 and July 1. When using the straight-line method, the amount of discount to be amortized on July 1, 2001 is: a. $ 627.60 b. $ 313.76 c. $1,553.00 d. $ 186.22

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Utilizing the straight-line amortization method, the yearly interest expense on a $500,000, 11 percent, 20-year bond issued at 94 will be: a. $53,500 b. $55,000 c. $56,500 d. $59,000 Total interest expense on a $400,000, 10 percent, 10-year bond issued at 95 would be: a. $380,000 b. $390,000 c. $400,000 d. $420,000

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Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The amount of cash received on January 1, 2000, is: a. $100,000 b. $99,000 c. $98,000 d. $102040 Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The balance in Discount on Bonds Payable on January 1, 2000, is: a. $0 b. $1,000 c. $2,000 d. $1,500 Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The balance in Discount on Bonds Payable on December 31, 2007, is: a. $0 b. $1,000 c. $2,000 d. $1,500 Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The carrying value of the bond on December 31, 2007, is: a. $100,000 b. $99,000 c. $98,000 d. $102040

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Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The amount of cash repaid to bondholders on January 1, 2008, is: a. $100,000 b. $99,000 c. $98,000 d. $102040 Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of cash received on January 1, 2000, is: a. $150,000 b. $147,000 c. $147,058 d. $153,000

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Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. To record the issuance of the bond on January 1, 2000: a. Premium on Bonds Payable is credited b. Premium on Bonds Payable is debited c. Discount on Bonds Payable is credited d. Discount on Bonds Payable is debited Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of interest paid on July 1, 2000, is: a. $12,000 b. $6,000 c. $6,150 d. $5,850 Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of interest expense recorded on July 1, 2000, is: a. $12,000 b. $6,000 c. $6,150 d. $5,850

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30. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The carrying value of the bond on December 31, 2000, is: a. $153,300 b. $152,700 c. $150,000 d. $153,000

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MODULE 6 Liabilities and Owners' Equity - Corporate Transactions

Demonstration Problem Lang Corporation Lang Corporation is authorized to issue 150,000 shares of $5 par value common stock and 5,000 shares of 6%, $25 par value preferred stock. This assignment requires you to record the stock transactions for Lang Corporation for 2000 and 2001 in the general journal. Transactions for 2000 Jan. 1, 2000 Issued 30,000 shares of $5 par value common stock at $8 per share. Jan. 1, 2000 Issued 1,000 shares of 6%, $25 par value preferred stock at $26 per share. Dec. 31, 2000 The board of directors declared a dividend for one year on the $25, 6% preferred stock (1,000 shares issued) and of $0.40 per share on the shares of common stock (30,000 shares issued). Transactions for 2001 Mar. 1, 2001 Paid the dividends declared in the previous transaction. Recall that the company declared a dividend for one year on the $25, 6% preferred stock (1,000 shares issued) and of $0.40 per share on the shares of common stock (30,000 shares issued). June 25, 2001 Purchased 4,000 shares of its own $5 par value common stock at $9 per share. DATE 2000 Jan. 1 Jan. 1 Dec. 31 2001 Mar. 1 June 25 ACCOUNT Cash Common Stock Contributed Capital in Excess of Par - Common Cash Preferred Stock Contributed Capital in Excess of Par - Preferred Dividends Dividends Payable - Common Dividends Payable - Preferred Dividends Payable - Common Dividends Payable - Preferred Cash Treasury Stock Cash DEBIT 240,000 150,000 90,000 26,000 25,000 1,000 13,500 12,000 1,500 12,000 1,500 13,500 36,000 36,000 CREDIT

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Practice Problem 1 Milton Corporation Milton Corporation was authorized to issue 10,000 shares of $50 par value, 4% preferred stock and 250,000 shares of $1 par value common stock. This assignment requires you to record the stock transactions for Milton Corporation for 2000 in the general journal. Transactions for 2000 Jan. 1, 2000 Issued 100,000 shares of $1 par value common stock at $5 per share. Jan. 1, 2000 Issued 2,000 shares of 4%, $50 par value preferred stock at $52 per share. Dec. 31, 2000 The board of directors declared a dividend for one year on the $50, 4% preferred stock (2,000 shares issued) and of $0.20 per share on the shares of common stock (100,000 shares issued). Transactions for 2001 Mar. 1, 2001 Paid the dividends declared in the previous transaction. Recall that the company declared a dividend for one year on the $50, 4% preferred stock (2,000 shares issued) and of $0.20 per share on the shares of common stock (100,000 shares issued). June 25, 2001 Purchased 5,000 shares of its own $1 par value stock at $7 per share. DATE 2000 Jan. 1 Jan. 1 Dec. 31 2001 Mar. 1 June 25 ACCOUNT Cash Common Stock Contributed Capital in Excess of Par - Common Cash Preferred Stock Contributed Capital in Excess of Par - Preferred Dividends Dividends Payable - Common Dividends Payable - Preferred Dividends Payable - Common Dividends Payable - Preferred Cash Treasury Stock Cash DEBIT 500,000 100,000 400,000 104,000 100,000 4,000 24,000 20,000 4,000 20,000 4,000 24,000 35,000 35,000 CREDIT

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Practice Problem 2 Brookfield Corporation Brookfield Corporation is authorized to issue 80,000 shares of $8 par value common stock. 30,000 shares were issued at $10 on January 1, 2000. On March 1, the company declared a stock dividend of 5%. On June 1, the board of directors declared a dividend of $0.25 per share. On November 1, the company announced a stock split of 2 to 1. The company purchased 6,000 shares of its own stock on December 1 at $11 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding. Transaction Issue stock Declare stock Dividend Declare cash dividend Declare stock split Purchase treasury stock Cash Receipt $300,000 Cash Payment Shares Authorized 80,000 80,000 80,000 80,000 $66,000 80,000 Shares Issued 30,000 31,500 31,500 63,000 63,000 Shares Outstanding 30,000 31,500 31,500 63,000 57,000 Par Value $8 $8 $8 $4 $4

After the stock is issued on January 1, 30,000 shares are issued and outstanding. On March 1, 1,500 (0.05 x 30,000) shares are issued. Thus total shares issued and outstanding after March 1 is 31,500. The declaration of the cash dividend does not affect any of the above. Cash will only be affected when this dividend is paid. The 2 for 1 split doubles the issued and outstanding shares to 63,000 (2 x 31,500) and reduces the par value to 4. The purchase of treasury stock reduces the outstanding shares to 57,000 (67,000 - 6,000).

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Homework Problem 1 Olson Corporation Olson Corporation was authorized to issue 25,000 shares of $100 par value, 5% preferred stock and 100,000 shares of $10 par value common stock. This assignment requires you to record the stock transactions for Olson Corporation for 2000 and 2001 in the general journal. Transactions for 2000 Jan. 1 Issued 50,000 shares of $10 par value common stock at $15 per share. Jan. 1 Issued 5,000 shares of $100 par value preferred stock at $105 per share. Dec. 31 The board of directors declared a dividend for one year on the $100, 5% preferred stock (5,000 shares issued) and of $0.80 per share on the shares of common stock (50,000 shares issued). Transactions for 2001 Feb. 15 Paid the dividends declared in the previous transaction. Recall that the company declared a dividend for one year on the $100, 5% preferred stock (5,000 shares issued) and of $0.80 per share on the shares of common stock (50,000 shares issued). Apr. 25 Purchased 2,000 shares of its own $10 par value stock at $17 per share. DATE 2000 Jan. 1 Jan. 1 Dec. 31 2001 Feb. 15 Apr. 25 ACCOUNT Cash Common Stock Contributed Capital in Excess of Par - Common Cash Preferred Stock Contributed Capital in Excess of Par - Preferred Dividends Dividends Payable - Common Dividends Payable - Preferred Dividends Payable - Common Dividends Payable - Preferred Cash Treasury Stock Cash DEBIT 750,000 500,000 250,000 525,000 500,000 25,000 65,000 40,000 25,000 40,000 25,000 65,000 34,000 34,000 CREDIT

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Homework Problem 2 Atkins Corporation Atkins Corporation was authorized to issue 20,000 shares of $25 par value, 6% preferred stock and 100,000 shares of $5 par value common stock. This assignment requires you to record the stock transactions for Atkins Corporation for 2000 and 2001 in the general journal. Transactions for 2000 Jan. 1 Issued 30,000 shares of $5 par value common stock at $8 per share. Jan. 1 Issued 4,000 shares of $25 par value preferred stock at $30 per share. Dec. 31 The board of directors declared a dividend for one year on the $25, 6% preferred stock (4,000 shares issued) and of $0.30 per share on the shares of common stock (30,000 shares issued). Transactions for 2001 Mar. 7 Paid the dividends declared in the previous transaction. Recall that the company declared a dividend for one year on the $25, 6% preferred stock (4,000 shares issued) and of $0.30 per share on the shares of common stock (30,000 shares issued). Jun.. 25 Purchased 1,000 shares of its own $5 par value stock at $9 per share. DATE 2000 Jan. 1 Jan. 1 Dec. 31 2001 Mar. 7 Jun. 25 ACCOUNT Cash Common Stock Contributed Capital in Excess of Par - Common Cash Preferred Stock Contributed Capital in Excess of Par - Preferred Dividends Dividends Payable - Common Dividends Payable - Preferred Dividends Payable - Common Dividends Payable - Preferred Cash Treasury Stock Cash DEBIT 240,000 150,000 90,000 120,000 100,000 20,000 15,000 9,000 6,000 9,000 6,000 15,000 9,000 9,000 CREDIT

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Homework Problem 3 Claxton Corporation Claxton Corporation is authorized to issue 250,000 shares of $10 par value common stock. 100,000 shares were issued at $12 on January 1, 2000. On July 1, the board of directors declared a dividend of $0.30 per share. The dividend was paid on August 16. The company issued a 2 for 1 stock split on November 2. The company purchased 5,000 shares of its own stock on October 1 at $12 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding. Transaction Issue stock Declare cash Dividend Pay cash dividends Declare stock split Purchase treasury stock Cash Receipt $1,200,000 Cash Payment Shares Authorized 250,000 250,000 $30,000 250,000 250,000 $60,000 250,000 Shares Issued 100,000 100,000 100,000 200,000 200,000 Shares Outstanding 100,000 100,000 100,000 200,000 195,000 Par Value $10 $10 $10 $5 $5

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Homework Problem 4 Cromwell Corporation Cromwell Corporation is authorized to issue 50,000 shares of $10 par value. 20,000 shares were issued at $14 on January 1, 2000. On March 1, the company declared a stock dividend of 5%. On June 1, the board of directors declared a dividend of $0.25 per share. The dividend was paid on August 16. The company purchased 4,000 shares of its own stock on October 1 at $15 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding. Transaction Issue stock Declare stock Dividend Declare cash dividend Pay cash dividends Purchase treasury stock Cash Receipt $280,000 Cash Payment Shares Authorized 50,000 50,000 50,000 $5,250 60,000 50,000 50,000 Shares Issued 20,000 21,000 21,000 21,000 21,000 Shares Outstanding 20,000 21,000 21,000 21,000 17,000 Par Value $10 $10 $10 $10 $10

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Homework Quiz Corporate Transactions

1. Peter Corporation issues a Common Stock dividend. The entry to record this transaction will: a. Decrease the Common Stock's par value. b. Increase total Common Stock shares issued and outstanding. c. Increase the Corporation's Retained Earnings account. d. Decrease the Corporation's Cash account. On what date is a Corporation's liability for a Dividend recognized? a. The date of record b. The date of payment c. The date of announcement d. The date of declaration The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a: a. Liquidating dividend b. Stock split c. Stock option d. Preferred dividend A Corporation's primary rationale for a stock split is to: a. Increase Paid-In Capital. b. Reduce the per share market price of the Common Stock. c. Increase the par value of the Common Stock. d. Increase Retained Earnings. A 2-for-1 stock split: a. Doubles Retained Earnings. b. Increases the par value of all authorized stock by 50%. c. Doubles the number of Common Stock shares outstanding. d. Requires a transfer of retained earnings to contributed capital. Treasury Stock is reported in which section of the balance sheet? a. Fixed assets b. Long-term Liabilities c. Stockholders' Equity d. Plant Assets Treasury Stock represents stock that is: a. Authorized but not issued b. Issued and outstanding c. Issued but not outstanding d. Authorized and outstanding

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The entry to record the purchase of 5,000 shares of a corporation's own $20 par common stock at $25, paid in cash, includes a debit to: a. Common Stock b. Paid-In Capital in Excess of Par

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c. d. 9.

Retained Earnings Treasury Stock

Heather Corporation purchases 20,000 shares of its own $20 par common stock for $35 per share. What will be the effect on Heather's Total Stockholders' equity? a. Increase by $400,000 b. Increase by $700,000 c. Decrease by $400,000 d. Decrease by $700,000 Which of the following statements about Treasury Stock is true? a. It is classified as an asset on the balance sheet. b. It allows management to vote for members of the board of directors. c. It is considered outstanding stock. d. It usually has a debit balance. Colby Corporation issues 20,000 shares of $10 par value Common Stock at $14 per share. Contributed Capital in Excess of Par, is credited for: a. $280,000 b. $ 80,000 c. $200,000 d. None of the above Colby Corporation issues 30,000 shares of $5 par value Common Stock at $20 per share. Contributed Capital in Excess of Par, is credited for: a. $ 30,000 b. $ 150,000 c. $ 450,000 d. $ 600,000 Flight Incorporated presents the following information: Common Stock Paid-In Capital Excess of Par Retained Earnings Treasury Stock $1,000,000 $80,000 $380,000 $40,000

10.

11.

12.

13.

What is the total stockholders' equity based on the following account balances? a. $ 1,040,000 b. $ 1,060,000 c. $ 1,420,000 d. $ 1,500,000

14.

Antech Corporation has 50,000 shares of $100 par value stock outstanding. If Antech issues a 4for-1 stock split, the number of shares outstanding after the split will be: a. 200,000 shares b. 50,000 shares c. 250,000 shares d. 12,500 shares

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15.

Lawretz Corporation has 4,000,000 authorized shares of $9 par-value common stock, with 600,000 shares issued and outstanding. After a 3-for-1 stock split, Lawretz Corporation would have: a. 1,800,000 shares of Common Stock issued and outstanding at $3 par b. 200,000 shares of Common Stock issued and outstanding at $27 par c. 12,000,000 shares of Common Stock outstanding at $3 par d. 1,333,333 shares of Common Stock outstanding at $27 per share Serene Corporation has 100,000 shares of $15 par Common Stock outstanding. Serene declares a 7,000 share Stock Dividend when the market value of the stock is $24 per share. By what amount will the Common Stock account increase after completing this transaction?</font> a. $ 105,000 b. $ 150,000 c. $1,500,000 d. $2,400,000 Serene Corporation has 100,000 shares of $15 par Common Stock outstanding. Serene declares a 7,000 share Stock Dividend when the market value of the stock is $24 per share. By what amount will the Contributed Capital in Excess of Par account increase after completing this transaction? a. $ 105,000 b. $ 150,000 c. $ 63,000 d. $ 168,000 Red River Corporation has 80,000 shares of $14 par-value common stock outstanding. If the corporation declares a 15 percent stock dividend and the market value of the stock on the date of declaration is $22 per share, what amount should be credited to the Contributed Capital in Excess of Par account? a. $264,000 b. $ 96,000 c. $ -0d. $168,000 Carother Corporation's charter provides for the issuance of 200,000 shares of common stock. Assume that 120,000 shares are originally issued and 10,000 are subsequently reacquired. What is the amount of cash dividends to be paid if a $1 per share dividend is declared? a. $120,000 b. $ 10,000 c. $200,000 d. $110,000 AnchorTech Corporation has 100,000 authorized shares of $5 par common stock. AnchorTech issued 40,000 shares at $7. Subsequently, the company declared a 2% stock dividend on a date when the market price was $9 a share. The effect of the declaration and issuance of the stock dividend is to: a. Retained Earnings: Decrease; Common Stock: Increase; Contributed Capital in Excess of Par: Increase b. Retained Earnings: Increase; Common Stock: Decrease; Contributed Capital in Excess of Par: Decrease c. Retained Earnings: Increase; Common Stock: Decrease; Contributed Capital in Excess of Par: Increase

16.

17.

18.

19.

20.

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d. 21.

Retained Earnings: Decrease; Common Stock: Increase; Contributed Capital in Excess of Par: Decrease

Quinn Company is authorized to issue 100,000 shares of $10 par value common stock. On December 31, 2000, Quinn Company had 35,000 shares issued and outstanding. The company bought back 5,000 shares of its own stock on April 3, 2001. The number of shares issued on April 4, 2001, are: a. 35,000 b. 30,000 c. 40,000 d. 95,000 Quinn Company is authorized to issue 100,000 shares of $10 par value common stock. On December 31, 2000, Quinn Company had 35,000 shares issued and outstanding. The company bought back 5,000 shares of its own stock on April 3, 2001. The number of shares outstanding on April 4, 2001, is: a. 35,000 b. 30,000 c. 40,000 d. 95,000 Snell Corporation has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value cumulative preferred stock. The total amount of dividends payable to preferred stockholders each year is: a. $200 b. $5,000 c. $10,000 d. $20,000 Snell Corporation started operations on January 1, 2000. The company has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value cumulative preferred stock. The board of directors declared dividends of $5,000 and $21,000 in 2000 and 2001 respectively. The amount of dividends paid to common stockholders in 2001 is: a. $11,000 b. $6,000 c. $11,500 d. $1,000 Snell Corporation started operations on January 1, 2000. The company has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value preferred stock. Assume that the preferred stock is not cumulative. The board of directors declared dividends of $5,000 and $21,000 in 2000 and 2001 respectively. The amount of dividends paid to common stockholders in 2001 is: a. $11,000 b. $6,000 c. $11,500 d. $1,000 Johansen Corporation is authorized to issue 150,000 shares of $1 par value common stock. On December 31, 2000, Johansen Corporation had 80,000 shares issued and outstanding. The

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23.

24.

25.

26.

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company issued a 10% stock dividend on March 30, 2001. The par value of the stock on March 31, 2001, is: a. $0.50 b. $1.10 c. $0.90 d. $1.00 27. Johansen Corporation is authorized to issue 150,000 shares of $1 par value common stock. On December 31, 2000, Johansen Corporation had 80,000 shares issued and outstanding. The company issued a 10% stock dividend on March 30, 2001. The number of shares outstanding on March 31, 2001, is: a. 88,000 b. 80,000 c. 72,000 d. 8,000 Ehrlich Corporation is authorized to issue 175,000 shares of $1 par value common stock. On December 31, 2000, Ehrlich Corporation had 30,000 shares issued and outstanding. The company issued a 3 for 1 stock split on June 29, 2001. The number of shares outstanding on June 30, 2001, is: a. 10,000 b. 90,000 c. 30,000 d. 85,000 Ehrlich Corporation is authorized to issue 175,000 shares of $1 par value common stock. On December 31, 2000, Ehrlich Corporation had 30,000 shares issued and outstanding. The company issued a 3 for 1 stock split on June 29, 2001. The par value of the stock on June 30, 2001, is: a. $0.33 b. $3.00 c. $1.30 d. $1.00

28.

29.

30.

Dividends payable is credited for the amount of cash dividends on: a. Date of record b. Date of declaration c. Date of payment d. Last date in the fiscal period

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