Question 1 - Jeff Lynne (see E13-1) has studied the information you gave him in that exercise and has come to you with more statements about corporations.
1. Corporation management is both an advantage and a disadvantage of a corporation compared to a proprietorship or a partnership.
2. Limited liability of stockholders, government regulations, and additional taxes are the major disadvantages of a corporation.
3. When a corporation is formed, organization costs are recorded as an asset.
4. Each share of common stock gives the stockholder the ownership rights to vote at stockholder meetings, share in corporate earnings, keep the same percentage ownership when new shares of stock are issued, and share in assets upon liquidation.
5. The number of issued shares is always greater than or equal to the number of authorized shares.
6. A journal entry is required for the authorization of capital stock.
7. Publicly held corporations usually issue stock directly to investors.
8. The trading of capital stock on a securities exchange involves the transfer of already issued shares from an existing stockholder to another investor.
9. The market value of common stock is usually the same as its par value.
10. Retained earnings is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.
Instructions - Identify each statement as true or false. If false, indicate how to correct the statement.
Question 2 - During its first year of operations, Harlan Corporation had the following transactions pertaining to its common stock.
Jan. 10 Issued 70,000 shares for cash at $5 per share.
July 1 Issued 40,000 shares for cash at $7 per share.
Instructions -
(a) Journalize the transactions, assuming that the common stock has a par value of $5 per share.
(b) Journalize the transactions, assuming that the common stock is no-par with a stated value of $1 per share.
Question 4 - Grossman Corporation issued 1,000 shares of stock.
Instructions - Prepare the entry for the issuance under the following assumptions.
(a) The stock had a par value of $5 per share and was issued for a total of $52,000.
(b) The stock had a stated value of $5 per share and was issued for a total of $52,000.
(c) The stock had no par or stated value and was issued for a total of $52,000.
(d) The stock had a par value of $5 per share and was issued to attorneys for services during incorporation valued at $52,000.
(e) The stock had a par value of $5 per share and was issued for land worth $52,000.
Question 5 - Leone Co. had the following transactions during the current period.
Mar. 2 Issued 5,000 shares of $5 par value common stock to attorneys in payment of a bill for $30,000 for services provided in helping the company to incorporate.
June 12 Issued 60,000 shares of $5 par value common stock for cash of $375,000.
July 11 Issued 1,000 shares of $100 par value preferred stock for cash at $110 per share.
Nov. 28 Purchased 2,000 shares of treasury stock for $80,000.
Instructions - Journalize the transactions.