Problem I:
The following transactions occurred during the year. Indicate how each transaction affected the number of shares outstanding, the balances in Common Stock and Additional-Paid-in Capital. Assume a beginning balance of 51,000 shares of $2 per common stock.
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Transaction
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Shares Outstanding
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Common stock
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Additional Paid-in Capital
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Total Stockholders' Equity
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Purchased 1,000 shares of treasury stock at $10 per share
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(1,000)
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0
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0
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($10,000)
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Sold 600 shares of treasury stock at $12 per share
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Declared a 2-for-1 stock split
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Issued 2,000 shares of $1 par common stock at $15 per share
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Issued 5,000 shares of common stock in exchange for land valued at $25,000
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Problem II:
Fall Creek Company is considering two plans for raising $2,500,000 to expand its current operations. The first plan involves the sale of $2,500,000, 8%, 10-year bonds sold at face value. The second plan involves selling 50,000 shares of $50 par common stock at par. Fall Creek Company currently has outstanding 200,000 shares of stock and a net income of $900,000. Either plan is expected to generate additional income of $400,000 before interest and taxes. The income tax rate is 30%. Calculate earnings per share for both plans.
Problem III: Road Ranger Corporation reported the following stockholders’ equity:
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Paid-in capital:
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Preferred stock, $50 par value, 30,000 shares authorized, 7,500 shares issued, redemption value, $53.50
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$375,000
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Paid-in capital in excess of par value-preferred
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18,750
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Common stock, $1 par value, 200,000 shares authorized, 135,000 shares issued
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135,000
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Paid-in capital in excess of par-value common
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472,500
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Total paid-in capital
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$1,001,250
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Retained Earnings
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218,500
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Total stockholders' equity
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$1,219,750
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Required:
a. The board of directors declared a10% common stock dividend when the market price of the stock was $7 per share. Prepare the necessary journal entries to record the declaration and distribution of the common stock dividend.
b. What effect did the distribution of the common stock dividend have on:
i. total assets
ii. total liabilities
iii. total paid-in capital
iv. total stockholders’ equity
c. Assuming all required preferred stock dividends have been paid, calculate the book value of a share of common stock before and after the common stock dividend. If Ryan Smith owned 100 shares of Road Ranger’s common stock before the stock dividend, what is the total book value of Ryan’s stock before and after the stock dividend?
Problem Four:
Assume Dunlap Plastics is authorized to issue $500,000 of 7%, 10-year bonds payable. On December 31, 2006, when the market interest rate is 8%, the company issues $400,000 of the bonds and receives cash of $372,000. Dunlap Plastics amortizes bonds by the effective-interest method. The semiannual interest dates are June 30 and December 31.
(1). Prepare a bond amortization table for the first four semiannual interest periods.
(2). Record issuance of the bonds payable on December 31, 2006, the semiannual interest payment on June 30, 2007, and the payment on December 31, 2007.