Equity

Question 1

How to calculate property dividend gains and what is the JE?

Answer 1

Declaration price -Purchase price= gain

Ex:

Doe purchased 1,000 share for $9,000
Doe declared one property dividend for every 10 shares of doe. On that date market price was $14. There were 9,000 shares outstanding

Declaration price: 9,000/10=900 shares x $14= $12,600

Dividend purchase (in the books)= $9,000/1,000= $9 per share (cost) x 900 shares = $8,100

Dr RE 12,600
Cr Dividend payable 12,600

Dr Asset 4,500
Cr gain 4,500

Dr dividend payable 12,600
Cr Asset. 12,600

Question 2

What affect does a stock dividend have on OE?

Answer 2

A does not affect OE, except for a large stock dividend which reduces RE and increases APIC

Question 3

How do stock dividends affect S/H Equity or RE?

Answer 3

They do not affect it

Question 4

Do stock splits affect S/H Equity, Assets or APIC?

Answer 4

No it does not affect OE.

Question 5

How do you calculate the book value per share?

6% non cumulative p/s, $100 par
(Liquidation par is $105). 10,000
C/S. 33,000
RE. 12,500
T/S. (6,000)
Total OE. 49,500

Answer 5

(Total OE- Liquidation amount)/Shares outstanding

Liquidation amount = liquidation value minus par

$10,000/$100 per share= 100 shares

49,500- (100 shares x $105)/ 3,000= 13.00

Question 6

What is the difference between stock options and stock warrants?

Answer 6

Stock options are granted to officers and executives. Stock warrants are granted to existing stockholders.

Question 7

What does contributed capital consist of?

Answer 7

Total contributed capital is total legal capital plus other paid-in amounts.

Ex: common and preferred stock and subscribed stock

Question 8

What do the stated and the yield rate compute?

Answer 8

The stated rate computes the cash payments that are due. The yield rate will compute the amount of interest and should be used to compute the PV of both the principle and the annuities.

Question 9

What is the journal entry for a subscribed common stock at the subscirbed date?

Answer 9

Dr Cash (Cash Paid)
Dr Subscribed AR (Balance due)
Cr C/S Subscribed (Par value of C/S)
Cr APIC (Excess of Par)

Question 10

What are the journal entries when’s property dividend is issued with a book value of 4K and a FV of 6k?

Answer 10

Declaration date:
Dr RE 6k
Cr divid n payable 6k

Dr Asset 2k
Cr gain 2k

Date payment:

Dr dividend payable 6k
Cr asset. 6k

Question 11

What is the journal entry for a small stock dividend of 20,000 shares at $5 par, a FV of $20 and a stock dividend of 5%?

Answer 11

Recorded at FV

Dr RE 20k (20k x 5% x 20)
Cr c/s 5k (20k x 5%)
Cr APIC 15k

Question 12

What is the journal entry for a large stock dividend of 20,000 shares at $5 par, a FV of $20 and a stock dividend of 40%?

Answer 12

Large stock dividend are above 20-25% and are recorded at par

Dr RE 40k (20,000 x .4 x $5)
Cr c/s 40k

Question 13

What is the affect on book value per share and stockholders equity if a firm purchases treasury stock at a cost exceeding issuance cost?

Answer 13

If the repurchase cost exceeds issuance cost, then the purchase of T/S reduces owners equity. This increases book value.

Question 14

How does the declaration of a liquidating dividend affect OE?

Answer 14

It Decreases APIC and RE

Dr RE
DR APIC
CR Dividend Payable

Question 15

Using the Par value method what is the JE?
Ex: -100,000 authorized shares of $10 par value common stock
January 5—issued 75,000 shares at $14 per share.
December 27—purchased 5,000 shares at $11 per share

Answer 15

Dr T/S 50,000 (5,000 x $10)
Dr APIC- C/S 20,000 (5,000 x $4)
Cr APIC- T/S 15,000 (plug)
Cr Cash 55,000 (5,000 x $11)

Question 16

Using the Book Value method (used to convert P/S) what is the JE?
ssued 5,000 shares of $100 par convertible preferred stock for $110/ share. Convertable into 3 c/s at $25 par. On 12/31 the market value was $40.

Answer 16

Using the Book value method no gains can be recognized.

Dr P/S 500 (5,000 x $100)
Dr APIC- P/S 50 (5,000 x $10)
Cr C/S 375 (15,000 x $25)
Cr APIC 175 (plug)

Question 17

What are the JE for a property stock dividend?

Shares purchased for 400,000 at declaration date it was 430,000.

Answer 17

Date of declaration:
Dr Investment in stock 30,000
Cr Gain 30,000

At payment:
Dr Dividend payable 430,000
Cr Investment in stock 430,000

Question 18

Faulk purchased 500 shares of milo co. For 36k. On 12 of year 2 Faulk received 500 stock right entitling him to one share per right for $85. Before the rights were issued market price was $100 and after it was $90. Faulk sold the rights for $10 a right in year 3. What is the gain on the rights sale?

Answer 18

Stock= 500 x 90= 45,000
Rights=500 x 10= 5,000
Total =. 50,000

Allocate price

45,000/50,000 = .9
.9 x 36,000= 32,400 (stock price)
36,000 - 32,400= 3,600 (rights price)

Sold for 5,000
Rights. 3,600
Gain 1,400