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MODULE 6Liabilities and Owners' Equity - Bonds

Demonstration Problem 1Plymouth Corporation

Plymouth Corporation issued $200,000 of 9%, five-year bonds at 99 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. Plymouth Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal.

Transactions for 2000Jan. 1 Issued $200,000 of 5-year, 9% bonds at 99. Interest is paid on January 1 and July 1.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.Transactions for 2001Jan. 1 Recorded the interest payment.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.

Journal Entries for 2000

Transaction number

DATE ACCOUNT DEBIT CREDIT

20001 Jan. 1 Cash

Discount on Bonds Payable Bonds Payable

198,0002,000

200,0002 Jul. 1 Interest Expense

Cash Discount on Bonds Payable

9,2009,000

2003 Dec. 31 Interest Expense

Interest Payable Discount on Bonds Payable

9,2009,000

200

Semi-annual interest payment = $200,000 x 0.09 x 0.5 = $9,000The total discount of $2,000 is amortized over 5 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $2,000 /10= $200


Transaction number


20011 Jan. 1 Interest Payable

Cash9,000


Cash9,200

9,000

188

Discount on Bonds Payable 2003 Dec. 31 Interest Expense


9,2009,000

200

189

Practice Problem 1Antine Corporation

Antine Corporation issued $240,000 of 9%, three-year bonds at 99 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization.

Date Interest Expense

Amortization of Discount

Discount Carrying Value of Bond

Jan. 1, 2000 2,400 237,600Jul. 1, 2000 11,200 400 2,000 238,000

Dec. 31, 2000 11,200 400 1,600 238,400Jul. 1, 2001 11,200 400 1,200 238,800

Dec. 31, 2001 11,200 400 800 239,200Jul. 1, 2002 11,200 400 400 239,600

Dec. 31, 2002 11,200 400 0 240,000

Semi-annual interest payment = $240,000 x 0.09 x 0.5 = $10,800The total discount of $2,400 is amortized over 3 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $2,400 /6= $400Thus the discount decreases by $400 and the carrying value increases by $400 every six months. Thus, interest expense for each period = $10,800 + $400 = $11,200.

190

Practice Problem 2Amaral Corporation

Amaral Corporation issued $100,000 of 10-year, 10% bonds at 104 on January 1, 2000. Interest is payable on January 1 and July 1. Amaral Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal.

Transactions for 2000Jan. 1 Issued $100,000 of 10%, 10-year bonds at 104. Interest is paid on January 1 and July 1.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.

Transactions for 2001Jan. 1 Recorded the interest payment.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.


DATE ACCOUNT DEBIT CREDIT2000Jan. 1 Cash

Bonds Payable Premium on Bonds Payable

104,000100,000

4,000Jul. 1 Interest Expense

Premium on Bonds Payable Cash

4,800200

5,000Dec. 31 Interest Expense

Premium on Bonds Payable Interest Payable

4,800200

5,000Semi-annual interest payment = $100,000 x 0.1 x 0.5 = $5,000The total premium of $4,000 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $4,000 /20 = $200


DATE ACCOUNT DEBIT CREDIT2001Jan. 1 Interest Payable

Cash5,000



4,800200

5,000Dec. 31 Interest Expense


4,800200

5,000

191

Homework Problem 1Pelletier Corporation

Pelletier Corporation issued $300,000 of 8%, three-year bonds at 95 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. The fiscal year ends on December 31. Interest expense is recorded on July 1 and December 31 of each year. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization.


Amortization of Discount

Discount Carrying Value

Jan. 1, 2000 15,000 285,000Jul. 1, 2000 14,500 2,500 12,500 287,500Dec. 31, 2000 14,500 2,500 10,000 290,000Jul. 1, 2001 14,500 2,500 7,500 292,500Dec. 31, 2001 14,500 2,500 5,000 295,000Jul. 1, 2002 14,500 2,500 2,500 297,500Dec. 31, 2002 14,500 2,500 0 300,000Semi-annual interest payment = $300,000 x 0.08 x 0.5 = $12,000The total discount of $15,000 is amortized over 3 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $15,000/6 = $2,500Interest expense = $12,000 + $2,500 = $14,500

Homework Problem 2Vincent Corporation

Vincent Corporation issued $150,000 of 9%, three-year bonds at 101 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. The fiscal year ends on December 31. Interest expense is recorded on July 1 and December 31 of each year. This assignment requires you to calculate the interest expense and interest payments over the life of the bonds. You are also required to calculate the amortization of the bond discount and the carrying value of the bond at the end of the year for each year of the life of the bond using straight-line amortization.


Amortization of Premium

Premium Carrying Value

Jan. 1, 2000 1,500 151,500Jul. 1, 2000 6,500 250 1,250 151,250Dec. 31, 2000 6,500 250 1,000 151,000Jul. 1, 2001 6,500 250 750 150,750Dec. 31, 2001 6,500 250 500 150,500Jul. 1, 2002 6,500 250 250 150,250Dec. 31, 2002 6,500 250 0 150,000Semi-annual interest payment = $150,000 x 0.09 x 0.5 = $6,750The total premium of $1,500 is amortized over 3 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $1,500/6 = $250.Interest expense = $6,750 - $250 = $6,500.

192

Homework Problem 3Jackson Corporation

Jackson Corporation issued $250,000 of 10-year, 8% bonds at 103 on January 1, 2000. Interest is payable on January 1 and July 1. Jackson Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001.Transactions for 2000Jan. 1 Issued $250,000 of 10-year, 8% bonds at 103. Interest is paid on January 1 and July 1.Jul. 31 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.Transactions for 2001Jan. 1 Recorded the interest payment.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.


Transaction number


20001 Jan. 1 Cash

Bonds Payable Premium on Bonds Payable

257,500250,000



9,625375

10,0003 Dec. 31 Interest Expense


9,625375

10,000Semi-annual interest payment = $250,000 x 0.08 x 0.5 = $10,000The total premium of $7,500 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $7,500/20= $375


Transaction number


20011 Jan. 1 Interest Payable

Cash10,000



9,625375

10,0003 Dec. 31 Interest Expense


9,625375

10,000

193

Homework Problem 4Glaser Corporation

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Glaser Corporation issued $500,000 of 10-year, 8% bonds at 98 on January 1, 2000. Interest is payable on January 1 and July 1. Glaser Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001.Transactions for 2000Jan. 1 Issued $500,000 of 10-year, 8% bonds at 98. Interest is paid on January 1 and July 1.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bondsTransactions for 2001Jan. 1 Recorded the interest payment.Jul. 1 Recorded the interest payment.Dec. 31 Recorded the accrued interest on the bonds.



Discount on Bonds Payable Bonds Payable

490,00010,000



20,50020,000

500Dec. 31 Interest Expense


20,50020,000

500Semi-annual interest payment = $500,000 x 0.08 x 0.5 = $20,000The total discount of $10,000 is amortized over 10 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $10,000/20 = $500


DATE ACCOUNT DEBIT CREDIT2001Jan. 1 Interest Payable

Cash20,000



20,50020,000

500Dec. 31 Interest Expense


20,50020,000

500

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Homework QuizBonds

1. When a bond's stated rate of interest is higher than the market rate of interest, the bond will sell at:

a. a premium b. its face value c. its maturity value d. a discount

2. When a bond's stated rate of interest is lower than the market rate of interest, the bond will sell at:


3. When the market rate of interest for bonds is higher than a bond's stated rate of interest, the bond will sell at:


4. $1,000,000 of 10% bonds is issued at 102 1/2. What is the amount of cash received from the sale?

a. $25,000 b. $975,000 c. $1,025,000 d. $1,000,000

5. $4,000,000 of 12% bonds are issued at 101. What is the amount of cash received from the sale? a. $4,040,000

b. $4,000,000 c. $4,080,000 d. $3,520,000

6. $1,000,000 of 10% bonds is issued at 94. What is the amount of cash received from the sale? a. $60,000

b. $940,000 c. $960,000 d. 1,000,000

7. $4,000,000 of 12% bonds are issued at 92 1/2. What is the amount of cash received from the sale?

a. $3,700,000 b. $4,000,000 c. $4,100,000 d. $4,300,000

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8. Angelina Corporation just issued bonds. The stated rate of interest is greater than the market rate. The proper entry to record this transaction is:

a. Debit, Bonds Payable; Credit, Cash b. Debit, Cash and Discount on Bonds Payable; Credit, Bonds Payable c. Debit, Cash; Credit Premium on Bonds Payable and Bonds Payable d. Debit, Cash; Credit, Bonds Payable

9. Angelina Corporation just issued bonds. The stated rate of interest is less than the market rate. The proper entry to record this transaction is:

a. Debit, Bonds Payable; Credit, Cash b. Debit, Cash and Discount on Bonds Payable; Credit, Bonds Payable c. Debit, Cash; Credit Premium on Bonds Payable and Bonds Payable d. Debit, Cash; Credit, Bonds Payable 

10. Angelina Corporation just issued bonds at a premium. The entry to record the semiannual payment of interest is:

a. Debit, Premium on Bonds Payable and Interest Expense; Credit, Cash b. Debit, Interest Expense; Credit, Premium on Bonds Payable and Cash c. Debit, Interest Expense; Credit, Cash d. Debit, Bonds Payable; Credit, Interest Expense

11. Angelina Corporation just issued bonds at a discount. The entry to record the semiannual payment of interest is:

a. Debit, Discount on Bonds Payable and Interest Expense; Credit, Cash b. Debit, Interest Expense; Credit, Discount on Bonds Payable and Cash c. Debit, Interest Expense; Credit, Cash d. Debit, Bonds Payable; Credit, Interest Expense

12. Angelina Corporation employs the straight-line method for amortization of bond premium/discount. Which of the following statements is true?

a. Annual interest expense will increase over the life of the bond with the amortization of bond premium.

b. Annual interest expense will remain the same over the life of the bond with the amortization of bond discount.

c. Annual interest expense will decrease over the life of the bond with the amortization of bond discount.

d. Annual interest expense will increase over the life of the bond with the amortization of bond discount.

13. Angelina Corporation employs the straight-line method for amortization of bond premium/discount. Which of the following statements is true?a. The annual interest expense and the premium amortization will increase over the life of

the bonds for the amortization of bond premium. b. The annual interest expense and the discount amortization will decrease over the life of

the bonds for the amortization of bond discount. c. The annual interest expense and the premium amortization will be the same over

the life of the bonds for the amortization of bond premium. d. The annual interest expense will increase and the discount amortization will decrease

over the life of the bonds for the amortization of bond discount.

196

14. Jolina Corporation recently issued $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. Jolina utilizes the straight-line method for amortizing bond discount/premium. Which of the following statements is true?a. The amount of the annual interest expense is computed at 10% of the bond-carrying

amount at the beginning of the year. b. The amount of the annual interest expense gradually decreases over the life of the bonds. c. The amount of unamortized discount decreases from its balance at issuance date to

a zero balance at maturity. d. The amount of unamortized premium decreases from its balance at issuance date to a

zero balance at maturity.

15. Jolina Corporation recently issued $500,000 of 11%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 10%. Jolina utilizes the straight-line method for amortizing bond discount/premium. Which of the following statements is true?a. The amount of the annual interest expense is computed at 11% of the bond-carrying

amount at the beginning of the year.b. The amount of the annual interest expense gradually increases over the life of the bonds.c. The amount of unamortized discount decreases from its balance at issuance date to a zero

balance at maturity.d. The amount of unamortized premium decreases from its balance at issuance date to

a zero balance at maturity.

16. Weltech Corporation recently issued $200,000, 12%, 10-year bonds. Premium on the issue amounted to $25,000. Interest is paid semiannually. Weltech uses the straight-line method. The amount of premium to be amortized each interest period will be:

a. $ 1,250 b. $ 2,500 c. $ 5,000 d. Some other amount

17. Weltech Corporation issued $100,000 of 20-year, 6 percent bonds on January 1, 2001. The issue yielded $112,550.40 in cash. Interest payment dates on the bonds are January 1 and July 1. When using the straight-line method, the amount of premium to be amortized on July 1, 2001 is:

a. $ 627.60 b. $ 313.76 c. $1,553.00 d. $ 186.22

18. Weltech Corporation issued $100,000 of 20-year, 6 percent bonds on January 1, 2001. The issue yielded $87,449.60 in cash. Interest payment dates on the bonds are January 1 and July 1. When using the straight-line method, the amount of discount to be amortized on July 1, 2001 is:

a. $ 627.60 b. $ 313.76 c. $1,553.00 d. $ 186.22

197

19. Utilizing the straight-line amortization method, the yearly interest expense on a $500,000, 11 percent, 20-year bond issued at 94 will be:

a. $53,500 b. $55,000 c. $56,500 d. $59,000

20. Total interest expense on a $400,000, 10 percent, 10-year bond issued at 95 would be: a. $380,000

b. $390,000 c. $400,000 d. $420,000

21. Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The amount of cash received on January 1, 2000, is:a. $100,000b. $99,000c. $98,000d. $102040

22. Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The balance in Discount on Bonds Payable on January 1, 2000, is:a. $0b. $1,000c. $2,000d. $1,500

23. Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The balance in Discount on Bonds Payable on December 31, 2007, is:a. $0b. $1,000c. $2,000d. $1,500

24. Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The carrying value of the bond on December 31, 2007, is:a. $100,000b. $99,000c. $98,000d. $102040

198

25. Gardner Corporation issued $100,000 of 8-year, 9% bonds for 98 on January 1, 2000. Interest is payable on January 1 and July 1. Gardner Corporation uses the straight-line method of amortization. The amount of cash repaid to bondholders on January 1, 2008, is:a. $100,000b. $99,000c. $98,000d. $102040

26. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of cash received on January 1, 2000, is:a. $150,000b. $147,000c. $147,058d. $153,000

27. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. To record the issuance of the bond on January 1, 2000:a. Premium on Bonds Payable is creditedb. Premium on Bonds Payable is debitedc. Discount on Bonds Payable is creditedd. Discount on Bonds Payable is debited

28. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of interest paid on July 1, 2000, is:a. $12,000b. $6,000c. $6,150d. $5,850

29. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The amount of interest expense recorded on July 1, 2000, is:a. $12,000b. $6,000c. $6,150d. $5,850

30. Moore Corporation issued $150,000 of 10-year, 8% bonds for 102 on January 1, 2000. Interest is payable on January 1 and July 1. Moore Corporation uses the straight-line method of amortization. The carrying value of the bond on December 31, 2000, is:a. $153,300b. $152,700c. $150,000d. $153,000

199

MODULE 6Liabilities and Owners' Equity - Corporate Transactions

Demonstration Problem Lang Corporation

Lang Corporation is authorized to issue 150,000 shares of $5 par value common stock and 5,000 shares of 6%, $25 par value preferred stock. This assignment requires you to record the stock transactions for Lang Corporation for 2000 and 2001 in the general journal.

Transactions for 2000Jan. 1, 2000 Issued 30,000 shares of $5 par value common stock at $8 per share.Jan. 1, 2000 Issued 1,000 shares of 6%, $25 par value preferred stock at $26 per share.Dec. 31, 2000 The board of directors declared a dividend for one year on the $25, 6% preferred stock

(1,000 shares issued) and of $0.40 per share on the shares of common stock (30,000 shares issued).

Transactions for 2001Mar. 1, 2001 Paid the dividends declared in the previous transaction. Recall that the company

declared a dividend for one year on the $25, 6% preferred stock (1,000 shares issued) and of $0.40 per share on the shares of common stock (30,000 shares issued).

June 25, 2001 Purchased 4,000 shares of its own $5 par value common stock at $9 per share.


Common Stock Contributed Capital in Excess of Par - Common

240,000150,000 90,000

Jan. 1 Cash Preferred Stock Contributed Capital in Excess of Par - Preferred

26,00025,0001,000

Dec. 31 Dividends Dividends Payable - Common Dividends Payable - Preferred

13,50012,0001,500

2001Mar. 1 Dividends Payable - Common

Dividends Payable - Preferred Cash

12,0001,500

13,500June 25 Treasury Stock

Cash36,000

36,000

200

Practice Problem 1Milton Corporation

Milton Corporation was authorized to issue 10,000 shares of $50 par value, 4% preferred stock and 250,000 shares of $1 par value common stock. This assignment requires you to record the stock transactions for Milton Corporation for 2000 in the general journal.

Transactions for 2000Jan. 1, 2000 Issued 100,000 shares of $1 par value common stock at $5 per share.Jan. 1, 2000 Issued 2,000 shares of 4%, $50 par value preferred stock at $52 per share.Dec. 31, 2000 The board of directors declared a dividend for one year on the $50, 4% preferred stock


Transactions for 2001Mar. 1, 2001 Paid the dividends declared in the previous transaction. Recall that the company


June 25, 2001 Purchased 5,000 shares of its own $1 par value stock at $7 per share.



500,000100,000 400,000


104,000100,000

4,000Dec. 31 Dividends

Dividends Payable - Common Dividends Payable - Preferred

24,00020,0004,000



20,0004,000

24,000June 25 Treasury Stock

Cash35,000

35,000

201

Practice Problem 2Brookfield Corporation

Brookfield Corporation is authorized to issue 80,000 shares of $8 par value common stock. 30,000 shares were issued at $10 on January 1, 2000. On March 1, the company declared a stock dividend of 5%. On June 1, the board of directors declared a dividend of $0.25 per share. On November 1, the company announced a stock split of 2 to 1. The company purchased 6,000 shares of its own stock on December 1 at $11 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding.

Transaction Cash Receipt

Cash Payment

Shares Authorized

Shares Issued

Shares Outstanding

Par Value

Issue stock $300,000 80,000 30,000 30,000 $8Declare stock Dividend 80,000 31,500 31,500 $8Declare cash dividend 80,000 31,500 31,500 $8Declare stock split 80,000 63,000 63,000 $4Purchase treasury stock $66,000 80,000 63,000 57,000 $4

After the stock is issued on January 1, 30,000 shares are issued and outstanding. On March 1, 1,500 (0.05 x 30,000) shares are issued. Thus total shares issued and outstanding after March 1 is 31,500. The declaration of the cash dividend does not affect any of the above. Cash will only be affected when this dividend is paid. The 2 for 1 split doubles the issued and outstanding shares to 63,000 (2 x 31,500) and reduces the par value to 4. The purchase of treasury stock reduces the outstanding shares to 57,000 (67,000 - 6,000).

202

Homework Problem 1Olson Corporation

Olson Corporation was authorized to issue 25,000 shares of $100 par value, 5% preferred stock and 100,000 shares of $10 par value common stock. This assignment requires you to record the stock transactions for Olson Corporation for 2000 and 2001 in the general journal.

Transactions for 2000Jan. 1 Issued 50,000 shares of $10 par value common stock at $15 per share.Jan. 1 Issued 5,000 shares of $100 par value preferred stock at $105 per share.Dec. 31 The board of directors declared a dividend for one year on the $100, 5% preferred stock


Transactions for 2001Feb. 15 Paid the dividends declared in the previous transaction. Recall that the company


Apr. 25 Purchased 2,000 shares of its own $10 par value stock at $17 per share.



750,000500,000 250,000


525,000500,00025,000


65,00040,00025,000

2001Feb. 15 Dividends Payable - Common


40,00025,000

65,000Apr. 25 Treasury Stock

Cash34,000

34,000

203

Homework Problem 2Atkins Corporation

Atkins Corporation was authorized to issue 20,000 shares of $25 par value, 6% preferred stock and 100,000 shares of $5 par value common stock. This assignment requires you to record the stock transactions for Atkins Corporation for 2000 and 2001 in the general journal.

Transactions for 2000Jan. 1 Issued 30,000 shares of $5 par value common stock at $8 per share.Jan. 1 Issued 4,000 shares of $25 par value preferred stock at $30 per share.Dec. 31 The board of directors declared a dividend for one year on the $25, 6% preferred stock


Transactions for 2001Mar. 7 Paid the dividends declared in the previous transaction. Recall that the company


Jun.. 25 Purchased 1,000 shares of its own $5 par value stock at $9 per share.



240,000150,000 90,000


120,000100,00020,000


15,0009,0006,000



9,0006,000

15,000Jun. 25 Treasury Stock

Cash9,000

9,000

204

Homework Problem 3Claxton Corporation

Claxton Corporation is authorized to issue 250,000 shares of $10 par value common stock. 100,000 shares were issued at $12 on January 1, 2000. On July 1, the board of directors declared a dividend of $0.30 per share. The dividend was paid on August 16. The company issued a 2 for 1 stock split on November 2. The company purchased 5,000 shares of its own stock on October 1 at $12 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding.

Transaction Cash Receipt Cash Payment

Shares Authorized

Shares Issued

Shares Outstanding

Par Value

Issue stock $1,200,000 250,000 100,000 100,000 $10Declare cash

Dividend 250,000 100,000 100,000 $10Pay cash dividends $30,000 250,000 100,000 100,000 $10

Declare stock split 250,000 200,000 200,000 $5

Purchase treasury stock $60,000 250,000 200,000 195,000 $5

205

Homework Problem 4Cromwell Corporation

Cromwell Corporation is authorized to issue 50,000 shares of $10 par value. 20,000 shares were issued at $14 on January 1, 2000. On March 1, the company declared a stock dividend of 5%. On June 1, the board of directors declared a dividend of $0.25 per share. The dividend was paid on August 16. The company purchased 4,000 shares of its own stock on October 1 at $15 per share. This assignment requires you to calculate the amount of cash payment or receipt from the transaction, the par value of the stock, and the number of shares authorized, issued and outstanding.

Transaction Cash Receipt

Cash Payment

Shares Authorized

Shares Issued

Shares Outstanding

Par Value

Issue stock $280,000 50,000 20,000 20,000 $10Declare stock

Dividend 50,000 21,000 21,000 $10Declare cash

dividend 50,000 21,000 21,000 $10Pay cash dividends $5,250 50,000 21,000 21,000 $10Purchase

treasury stock 60,000 50,000 21,000 17,000 $10

206

Homework QuizCorporate Transactions

1. Peter Corporation issues a Common Stock dividend. The entry to record this transaction will: a. Decrease the Common Stock's par value.

b. Increase total Common Stock shares issued and outstanding.c. Increase the Corporation's Retained Earnings account.d. Decrease the Corporation's Cash account.

2. On what date is a Corporation's liability for a Dividend recognized? a. The date of record

b. The date of payment c. The date of announcement d. The date of declaration

3. The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a:

a. Liquidating dividend b. Stock split c. Stock option d. Preferred dividend

4. A Corporation's primary rationale for a stock split is to: a. Increase Paid-In Capital.

b. Reduce the per share market price of the Common Stock. c. Increase the par value of the Common Stock. d. Increase Retained Earnings.

5. A 2-for-1 stock split: a. Doubles Retained Earnings.

b. Increases the par value of all authorized stock by 50%. c. Doubles the number of Common Stock shares outstanding. d. Requires a transfer of retained earnings to contributed capital.

6. Treasury Stock is reported in which section of the balance sheet? a. Fixed assets

b. Long-term Liabilities c. Stockholders' Equity d. Plant Assets

7. Treasury Stock represents stock that is: a. Authorized but not issued

b. Issued and outstandingc. Issued but not outstanding d. Authorized and outstanding

8. The entry to record the purchase of 5,000 shares of a corporation's own $20 par common stock at $25, paid in cash, includes a debit to:

207

a. Common Stock b. Paid-In Capital in Excess of Par c. Retained Earnings d. Treasury Stock

9. Heather Corporation purchases 20,000 shares of its own $20 par common stock for $35 per share. What will be the effect on Heather's Total Stockholders' equity?

a. Increase by $400,000 b. Increase by $700,000 c. Decrease by $400,000 d. Decrease by $700,000

10. Which of the following statements about Treasury Stock is true? a. It is classified as an asset on the balance sheet.

b. It allows management to vote for members of the board of directors. c. It is considered outstanding stock. d. It usually has a debit balance.

11. Colby Corporation issues 20,000 shares of $10 par value Common Stock at $14 per share. Contributed Capital in Excess of Par, is credited for:

a. $280,000 b. $ 80,000 c. $200,000 d. None of the above

12. Colby Corporation issues 30,000 shares of $5 par value Common Stock at $20 per share. Contributed Capital in Excess of Par, is credited for:

a. $ 30,000 b. $ 150,000 c. $ 450,000 d. $ 600,000

13. Flight Incorporated presents the following information:

Common Stock $1,000,000Paid-In Capital Excess of Par $80,000Retained Earnings $380,000Treasury Stock $40,000

What is the total stockholders' equity based on the following account balances?a. $ 1,040,000 b. $ 1,060,000 c. $ 1,420,000 d. $ 1,500,000

14. Antech Corporation has 50,000 shares of $100 par value stock outstanding. If Antech issues a 4-for-1 stock split, the number of shares outstanding after the split will be:

a. 200,000 shares

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b. 50,000 shares c. 250,000 shares d. 12,500 shares

15. Lawretz Corporation has 4,000,000 authorized shares of $9 par-value common stock, with 600,000 shares issued and outstanding. After a 3-for-1 stock split, Lawretz Corporation would have:

a. 1,800,000 shares of Common Stock issued and outstanding at $3 par b. 200,000 shares of Common Stock issued and outstanding at $27 par c. 12,000,000 shares of Common Stock outstanding at $3 par d. 1,333,333 shares of Common Stock outstanding at $27 per share

16. Serene Corporation has 100,000 shares of $15 par Common Stock outstanding. Serene declares a 7,000 share Stock Dividend when the market value of the stock is $24 per share. By what amount will the Common Stock account increase after completing this transaction?

a. $ 105,000 b. $ 150,000 c. $1,500,000 d. $2,400,000

17. Serene Corporation has 100,000 shares of $15 par Common Stock outstanding. Serene declares a 7,000 share Stock Dividend when the market value of the stock is $24 per share. By what amount will the Contributed Capital in Excess of Par account increase after completing this transaction?

a. $ 105,000 b. $ 150,000 c. $ 63,000 d. $ 168,000

18. Red River Corporation has 80,000 shares of $14 par-value common stock outstanding. If the corporation declares a 15 percent stock dividend and the market value of the stock on the date of declaration is $22 per share, what amount should be credited to the Contributed Capital in Excess of Par account?

a. $264,000 b. $ 96,000 c. $ -0- d. $168,000

19. Carother Corporation's charter provides for the issuance of 200,000 shares of common stock. Assume that 120,000 shares are originally issued and 10,000 are subsequently reacquired. What is the amount of cash dividends to be paid if a $1 per share dividend is declared?

a. $120,000 b. $ 10,000 c. $200,000 d. $110,000

20. AnchorTech Corporation has 100,000 authorized shares of $5 par common stock. AnchorTech issued 40,000 shares at $7. Subsequently, the company declared a 2% stock dividend on a date

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when the market price was $9 a share. The effect of the declaration and issuance of the stock dividend is to:

a. Retained Earnings: Decrease; Common Stock: Increase; Contributed Capital in Excess of Par: Increase

b. Retained Earnings: Increase; Common Stock: Decrease; Contributed Capital in Excess of Par: Decrease

c. Retained Earnings: Increase; Common Stock: Decrease; Contributed Capital in Excess of Par: Increase

d. Retained Earnings: Decrease; Common Stock: Increase; Contributed Capital in Excess of Par: Decrease

21. Quinn Company is authorized to issue 100,000 shares of $10 par value common stock. On December 31, 2000, Quinn Company had 35,000 shares issued and outstanding. The company bought back 5,000 shares of its own stock on April 3, 2001. The number of shares issued on April 4, 2001, are: a. 35,000 b. 30,000c. 40,000d. 95,000

22. Quinn Company is authorized to issue 100,000 shares of $10 par value common stock. On December 31, 2000, Quinn Company had 35,000 shares issued and outstanding. The company bought back 5,000 shares of its own stock on April 3, 2001. The number of shares outstanding on April 4, 2001, is: a. 35,000 b. 30,000c. 40,000d. 95,000

23. Snell Corporation has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value cumulative preferred stock. The total amount of dividends payable to preferred stockholders each year is:a. $200b. $5,000c. $10,000d. $20,000

24. Snell Corporation started operations on January 1, 2000. The company has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value cumulative preferred stock. The board of directors declared dividends of $5,000 and $21,000 in 2000 and 2001 respectively. The amount of dividends paid to common stockholders in 2001 is:a. $11,000b. $6,000c. $11,500d. $1,000

25. Snell Corporation started operations on January 1, 2000. The company has issued 20,000 shares of $10 par value common stock and 4,000 shares of 5%, $50 par value preferred stock. Assume that the preferred stock is not cumulative. The board of directors declared dividends of $5,000

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and $21,000 in 2000 and 2001 respectively. The amount of dividends paid to common stockholders in 2001 is:a. $11,000b. $6,000c. $11,500d. $1,000

26. Johansen Corporation is authorized to issue 150,000 shares of $1 par value common stock. On December 31, 2000, Johansen Corporation had 80,000 shares issued and outstanding. The company issued a 10% stock dividend on March 30, 2001. The par value of the stock on March 31, 2001, is:a. $0.50b. $1.10c. $0.90d. $1.00

27. Johansen Corporation is authorized to issue 150,000 shares of $1 par value common stock. On December 31, 2000, Johansen Corporation had 80,000 shares issued and outstanding. The company issued a 10% stock dividend on March 30, 2001. The number of shares outstanding on March 31, 2001, is:a. 88,000b. 80,000c. 72,000d. 8,000

28. Ehrlich Corporation is authorized to issue 175,000 shares of $1 par value common stock. On December 31, 2000, Ehrlich Corporation had 30,000 shares issued and outstanding. The company issued a 3 for 1 stock split on June 29, 2001. The number of shares outstanding on June 30, 2001, is:a. 10,000b. 90,000c. 30,000d. 85,000

29. Ehrlich Corporation is authorized to issue 175,000 shares of $1 par value common stock. On December 31, 2000, Ehrlich Corporation had 30,000 shares issued and outstanding. The company issued a 3 for 1 stock split on June 29, 2001. The par value of the stock on June 30, 2001, is:a. $0.33b. $3.00c. $1.30d. $1.00

30. Dividends payable is credited for the amount of cash dividends on:a. Date of recordb. Date of declaration

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c. Date of paymentd. Last date in the fiscal period

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practice problem 2 - cengage learning · web viewdebit, bonds payable; credit, interest expense 11....

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