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Chapter 15: Question 6Q (page 810)
What is meant by par value, and what is its significance to stockholders?
The par value is a fixed and arbitraryamount per share attributed to the shares by the incorporators. It helps to determine the overall value of the shares issued.
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Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.
The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2017. In 2017, 15,000 shares were authorized and 7,000 shares of common stock (\(50 par value) were issued at a price of \)57. In 2018, 1,000 shares were issued as a stock dividend when the stock was selling for \(60. Three hundred shares of common stock were bought in 2019 at a cost of \)64 per share. These 300 shares are still in the company treasury.
In 2018, 10,000 preferred shares were authorized and the company issued 5,000 of them (\(100 par value) at \)113. Some of the preferred stock was reacquired by the company and later reissued for \(4,700 more than it cost the company.
The corporation has earned a total of \)610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation.
Instructions
Prepare the stockholders鈥� equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2019. Account for treasury stock using the cost method.
(Analysis of Equity Data and Equity Section Preparation) For a recent 2-year period, the balance sheet of Santana Dotson Company showed the following stockholders鈥� equity data on December 31 (in millions).
2017 | 2016 | |
Additional paid-in capital | \( 931 | \) 817 |
Common stock | 545 | 540 |
Retained earnings | 7,167 | 5,226 |
Treasury stock | 1,564 | 918 |
Total stockholders鈥� equity | \(7,079 | \)5,665 |
Common stock shares issued | 218 | 216 |
Common stock shares authorized | 500 | 500 |
Treasury stock shares | 34 | 27 |
Instructions
(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of \(100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of \)10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at \(16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the
following assets: equipment with a fair value of \)50,000; a factory
building with a fair value of \(160,000; and land with an
appraised value of \)270,000.
July 29 Purchased 1,800 shares of common stock at \(17 per share. (Use cost
method.)
Aug. 10 Sold the 1,800 treasury shares at \)14 per share.
Dec. 31 Declared a \(0.25 per share cash dividend on the common stock and
declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a \)175,700 net
income.
Instructions
Joe Dumars Company has outstanding 40,000 shares of \(5 par common stock, which had been issued at \)30 per share. Joe Dumars then entered into the following transactions.
Instructions
Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).
# | Asset | Liabilities | Stockholders鈥� Equity | Paid-in Capital | Retained Earnings | Net Income |
1 | ||||||
2 | ||||||
3 |
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