Solutions Guide: Please do not present as your own



Solutions Guide:   Please do not present as your own.  This is only meant as a solutions guide for you to answer the problem on your own. I recommend doing this with any content you buy online whether from me or from someone else.

11.4 A -

Early in the year bill Barnes and several friends organized a corp known as Barnes communiations, inc. The corporation was authorized to issue 50,000 shares of $100 Par value, 10% cumulative preferred stock, and 400,000 shares of $2 par value common stock. the following transactions (among others) occurred during the year:

 

Jan. 6 - Issued for ash 20,000 shares of common stock at $14 per share. These shares were issue to Barnes and 10 other investors.

 

Jan 7. - Issued an additional 500 shares of common stock to Barnes in exchange for his services in organizing the company. The stockholders agreed that these services were worth $7,000.

 

Jan. 12 Issued 2,500 shares of preferred stock for cash of $250,000

 

June 4 - Acquired land as a building site in exchange for 15,000 shares of common stock. In view of the appraised value of the land and the progress of the company, the directors agreed that the common stock was to be valued for purposes of this transaction at $15 per share.

 

Nov 15 - The first annual dividend of $10 per share was declared on the preferred stock to be paid Dec. 20

 

Dec. 20 - Paid the cash dividend declared on Nov 15

 

Dec 31 - After the revenue and the expenses were closed into the income summary account, that account indicated a net income of $147,200.

 

Instructions:

1. Prepared journal entries in general ledger form to record the above transactions. Includes entried at dec 31 to close the income summary account and the divdends account.

 

2. Prepare the stockholders equity section of the Barnes communications Inc. balance sheet at Dec. 31.

 

 

11.6A

 

Parson, Inc. is a publicly owned company. the following info is excerpted from a recent balance sheet. Dollar amounts (except per share amounts are stated in thousands)

 

Stockholder's Equity:

Convertible $17.20 perferred stock, $250 par value, 1,000,000 shares authorized;345,000 shares issued and outstanding............$86,250

 

Common stock, par value $.50,25,000,000 shares authorized..........$6,819

Additional paid in capital............87,260

Retained earnings........57,263

Total Stockholder's equity............$237,592

 

Instructions:

a. How many shares of common stock have been issued?

b. What is the total amuont of the annual dividends paid to preferrred stockholders?

c. What is the total amount of paid in capital?

d. What is the book value per share of common stock?

e. Briefly explain the advantages and disadvantages to Parsons of being publicly ownened rather than being privately owned.

f. What is meant by the term convertible used in the the preferred stock?

g. Assume that preferred stock is selling at $248 per share. does this provide a higher or lower dividend yield than 8%, $50 par value preferrred with a market price of $57 per share. Show computations and explain why one preferred stock might yield less than another.

P11-4A)

|a. |

|General Journal |

| |

|20__ | |  |  |

|Jan |6 |Cash |  |  | 280,000 |

|  | |Issued 20,000 shares of $2 par value common stock|  | |

|  | |at $14 per share. | | |

|  |  | |  | |

| | 7 |Organization Costs Expense | 7,000 | |

|  |  |  |Common Stock |  |  |

|  |  |Issued 500 shares of common stock to Barnes in |  |  |

|  |  |exchange for services relating to formation of |  |  |

| | |the | | |

|  |  |corporation. Implied issuance price ($7,000 ÷ |  |  |

| | |500 | | |

|  |  |shares) = $14 per share. |  |  |

|  |  |  |  |  |

|  |  | |10% Cumulative Preferred Stock | | 250,000 |

|  |  |Issued 2,500 shares of $100 par value, 10%, |  |  |

|  |  |cumulative preferred stock at par value. |  |  |

|  |  |  |  |  |  |

|  |  |Issued 15,000 shares of common stock in exchange |  |  |

|  |  |for land valued at $225,000 (15,000 shares x |  |  |

| | |$15). | | |

|  |  |  |  |  |

|  |  |  |Dividends Payable |  | 25,000 |

|  |  |To record declaration of annual dividends of $10 |  |  |

|  |  |per share on 2,500 preferred shares outstanding. |  |  |

|  |  |Payable Dec. 20. |  |  |

|  |  |  |  |  |

|  |  | |Cash |  |

|  |  |  | |  |

|  |  | |Retained Earnings |  |

|  |  |year. |  |  |

| | 31 |Retained Earnings | 25,000 |  |

| |  |  |Dividends |  | 25,000 |

|  |  |To close the Dividends account. |  |  |

|  |  |  |  |  |  |

|b. |

|Partial Balance Sheet |

|December 31, 20___ |

|Stockholders' equity |  |  | |

| |10% cumulative preferred stock, $100 par, authorized | | |

|  | |50,000 shares, issued and outstanding 2,500 shares | | $ 250,000 |

|  |Common stock, $2 par, authorized 400,000 shares, |  | |

|  | |issued and outstanding 35,500 shares |  |  | 71,000 |

|  |Additional paid-in capital: Common stock |  | 441,000 |

|  |  |Total paid-in capital |  |  | $ 762,000 |

|  |Retained earnings* |  | 122,200 |

|  |  |Total stockholders' equity |  |  | $ 884,200 |

|  | |  |

|  |Retained earnings at January 1, 20__ | | $ - |

|  |Add: Net income in 20__ | | 147,200 |

|  |Less: Preferred dividends in 20__ | | (25,000) |

|  |Retained earnings at December 31, 20__. |  | $ 122,200 |

| |  | |

P11-6A)

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|e. |The basic advantage of being publicly owned is that the corporation has the opportunity to raise large amounts of equity |

| |capital from many investors. Some publicly owned corporations have millions of stockholders, including pension funds, mutual |

| |funds, and other corporations. Closely held corporations are usually unable to raise the large amounts of capital available to|

| |publicly owned corporations. |

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