1 Corporations Question 1 M & C Corporation charter authorizes 1,000,000 shares of common stock and 100,000 shares of preferred stock and the company had the following transactions in 2014, its first year of operations. • Issued 2,000 shares of common stock. Stock has par value of $1.00 per share and was issued for cash at $50.00 per share. • Issued 100 shares of $100 par value preferred stock. Shares were issued for cash at par. • Earned net income of $95,000. • Dividends of $5,000 declared and paid in cash. Required: 1. Journalize the above transactions in the books of M&C Corporation. 2. Prepare the stockholders' equity section of the balance sheet at December 31, 2014.
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Corporations
Question 1
M & C Corporation charter authorizes 1,000,000 shares of common stock and 100,000
first year of operations.
• Issued 2,000 shares of common stock. Stock has par value of $1.00 per
share and was issued for cash at $50.00 per share.
• Issued 100 shares of $100 par value preferred stock. Shares were issued
for cash at par.
• Earned net income of $95,000.
• Dividends of $5,000 declared and paid in cash.
Required:
1. Journalize the above transactions in the books of M&C Corporation.
2. Prepare the
2014.
Question 2
Bagman Corporation was organized early in 2014. The articles of incorporation
authorize 30,000 shares of $100 par value, 10% cumulative preferred stock and
600,000 shares of $5 par value common stock. The following transactions affecting
stockholders’ equity were completed during the first year:
1. Issued 50 shares of preferred stock at par value as payment for legal services.
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2. Issued 4,000 shares of common stock at $20 per share and 800 shares of preferred
stock at par.
3. Exchanged 10,000 shares of common stock for land with an appraised value of
$120,000 and a building with an appraised value of $90,000
4. Declared the required cash dividend on preferred stock and a $2 per share dividend
on common stock.
5. Closed the $200,000 credit balance in the Income Summary Account.
Required:
a. Prepare
b. Prepare the stockholders’ equity section of the balance sheet.
Question 3
Ballard Corporation received its corporate charter on January 2, 2013. The charter
authorized the following classes of capital stock:
Preferred stock, $100 par value, 10% cumulative, 50,000 shares Common stock, $5 par
value, 500,000 shares. During 2013, the following transactions occurred:
Jan. 4 Issued 5,000 shares of common stock to each of the three
incorporators at $20 per share. Cash was received in full from two
of the incorporators; the third incorporator received common stock
for legal services he performed for the corporation.
18 Sold 6,000 shares of preferred stock for $105 per share.
Apr. 6 Sold 60,000 shares of common stock for $26 per share.
Aug. 10 Issued 12,000 shares of common stock in exchange for land. The
market value of the common stock on that date was $30 per share,
and the appraised value of the land was $380,000.
Oct. 12 Declared the annual dividend on the preferred stock.
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Nov. 15 Paid the preferred stock dividend.
Dec. 31 Closed the $186,000 credit balance in the Income Summary account.
31 Closed the balance in the Dividend Declared account.
Required:
A. Prepare journal entries to record the transactions.
B. Prepare the stockholders’ equity section of the December 31, 2013, balance
sheet.
Question 4
Gabby Corporation has two classes of stock and the company’s balance sheet includes
the following:
Gabby Corporation
Stockholders’ Equity
December 31, 2014
Paid in capital:
Preferred stock, 6%, $25 par, 25,000 shares authorized, 10,000
shares issued
$ 250,000
Paid-in capital in excess of par-preferred 20,000
Common stock, $1 par, 10,000,000 shares authorized, 7,000,000
shares issued
7,000,000
Paid-in capital in excess of par-common 21,000,000
28,270,000
Retained earnings 1,730,000
Total Shareholders’ equity 30,000,000
Required:
1. Journalize the issuance of the preferred stock.
2. Journalize the issuance of the common stock.
3. Prepare a schedule showing the computation of the total paid in capital of the
company.
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Question 5
1. Distinguish between corporations and sole proprietorships in terms of the following
characteristics:
a) Owners’ liability for debts of the business
b) Transferability of ownership rights
c) Continuity of existence
d)
2. Distinguish between paid-in capital and retained earnings of a corporation. Why is
such a distinction useful?
3. Explain the significance of the following dates relating to cash dividends: date of
declaration, date of record and date of payment.
4. Distinguish between a stock split and a stock dividend. Is there any reason for the
difference in accounting treatment of these two events?
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