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Chapter 13: Q18RQ (page 707)
What is a stock split?
A stock split is a rise in the number of issued and outstanding shares of stock combined with a proportionate decrease in the par value of the stock.
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Question: Identifying sources of equity, stock issuance, and dividends
Tillman Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:
Preferred Stock鈥�5%, ? Par Value; 625,000 shares
authorized, 325,000 shares issued and outstanding
Paid-In Capital:
\( 1,300,000
1,350,000
Stockholders鈥� Equity
Paid-In Capital in Excess of Par鈥擟ommon 2,600,000
Total Paid-In Capital 5,250,000
Retained Earnings 11,800,000
Total Stockholders鈥� Equity \) 17,050,000
Common Stock鈥�$1 Par Value; 7,000,000 shares
authorized, 1,350,000 shares issued and outstanding
Requirements
3. Make two summary journal entries to record issuance of all the Tillman Comfort Specialists stock for cash. Explanations are not required.
Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet
The charter of Evergreen Corporation authorizes the issuance of 900 shares of preferred stock and 1,400 shares of common stock. During a two-month period, Evergreen completed these stock-issuance transactions:
Mar. 23 Issued 230 shares of \(3 par value common stock for cash of \)15 per share.
Apr. 12 Received inventory with a market value of \(27,000 and equipment with a market value of \)19,000 for 320 shares of the \(3 par value common stock.
17 Issued 900 shares of 5%, \)20 par value preferred stock for \(20 per share.
Requirements
2. Prepare the stockholders鈥� equity section of the Evergreen balance sheet as of April 30, 2018, for the transactions given in this exercise. Retained Earnings has a balance of \)73,000 at April 30, 2018
Computing rate of return on common stockholders鈥� equity Wyler, Inc.鈥檚 2018 balance sheet reported the following items鈥攚ith 2017 figures given for comparison:
Total Assets Total Liabilities and Stockholders鈥� Equity Total Liabilities Total Stockholders鈥� Equity (all common) WYLER, INC. Balance Sheet As of December 31, 2018, and December 31, 2017 \( 39,600 December 31, 2018 17,100 22,500 18,500 14,962 December 31, 2017 \) 39,600 \( 33,462 \) 33,462 Net income for 2018 was $3,690.
Compute Wyler鈥檚 rate of return on common stockholders鈥� equity for 2018.
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
Accounting for a stock split
Decor and More Imports recently reported the following stockholders鈥� equity:
Common Stock鈥擻(1 Par Value; 490,000,000 shares
authorized, 119,000,000 shares issued and outstanding
Paid-In Capital:
654,000,000
\) 119,000,000
267,000,000
Retained Earnings
Total Stockholders鈥� Equity \( 921,000,000
Stockholders鈥� Equity
Paid-In Capital in Excess of Par鈥擟ommon 148,000,000
Total Paid-In Capital
Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company鈥檚 stock was trading at \)17 per share immediately before the split.
Requirements
1. Prepare the stockholders鈥� equity section of the Decor and More Imports balance sheet after the stock split.
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