Equity and Investments

Resources: Ch. 11
& 12 of Financial Accounting

Complete Exercises
E11-15, E12-1, & E12-2.

Complete Problem
11-6A.

Submit
as a Microsoft^® Excel^® or Word document.

E11-15
On
October 31, the stockholders’ equity section of Omar Company consists of common
stock $600,000 and retained earnings $900,000. Omar is considering the
following two courses of action: (1) declaring a 5%
stock dividend on the 60,000, $10 par value shares outstanding, or (2)
effecting a 2-for-1 stock split that will reduce par value to $5 per share. The
current market price is $14 per share.

Instructions

Prepare a tabular summary of the
effects of the alternative actions on the components of stockholders’ equity
and outstanding shares. Use the following column headings: Before Action, After
Stock Dividend, and After Stock Split.

BE12-1
Coffey
Corporation purchased debt investments for $52,000 on January 1, 2011. On July 1, 2011, Coffey received cash
interest of $2,340. Journalize the purchase and the receipt of interest. Assume that no interest has
been accrued.

BE12-2  On
August 1,Wade Company buys 1,000 shares of Morgan common stock for $35,000 cash, plus brokerage fees of $700. On
December 1,Wade sells the stock investments for $40,000 in cash. Journalize the
purchase and sale of the common stock.

P11-6A
Arnold
Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative
preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned
a $5 stated value to the common stock. At December 31, 2011, the ledger
contained the following balances pertaining to stockholders’ equity.

Preferred
Stock                                                                        
$ 240,000 

Paid-in
Capital in Excess of Par Value—Preferred                       56,000

Common
Stock                                                                        
2,000,000

Paid-in
Capital in Excess of Stated Value—Common             
5,700,000

Treasury
Stock—Common (1,000 shares)                                    22,000

Paid-in
Capital from Treasury Stock                                                 3,000

Retained
Earnings                                                                         560,000

The preferred stock was issued for land
having a fair market value of $296,000.All common stock issued was for cash. In
November, 1,500 shares of common stock were purchased for the treasury at a per
share cost of $22. In December, 500 shares of treasury stock were sold for $28
per share.  No dividends were declared in
2011.

Instructions

(a)
Prepare the journal entries for the:

            (1) Issuance
of preferred stock for land.

            (2) Issuance
of common stock for cash.

            (3) Purchase
of common treasury stock for cash.

            (4) Sale
of treasury stock for cash.

(b)
Prepare the stockholders’ equity
section at December 31, 2011.