Chapter 13

Fairmount Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000 shares of cumulative \(2 \%\), preferred stock of \(\$ 150\) par, and 50,000 shares of \(\$ 5\) par common. During its first four years of operations, the following amounts were distributed as dividends: first year, \(\$ 30,000\); second year, \(\$ 42,000\); third year, \(\$ 90,000\); fourth year, \(\$ 120,000\). Calculate the dividends per share on each class of stock for each of the four years.

Michelangelo Inc., a software development firm, has stock outstanding as follows: 20,000 shares of cumulative \(1 \%\), preferred stock of \(\$ 25\) par, and 25,000 shares of \(\$ 100\) par common. During its first four years of operations, the following amounts were distributed as dividends: first year, \(\$ 3,000\); second year, \(\$ 4,000\); third year, \(\$ 30,000\); fourth year, \(\$ 80,000\). Calculate the dividends per share on each class of stock for each of the four years.

On February 10, Peerless Rocks Inc., a marble contractor, issued for cash 40,000 shares of \(\$ 10\) par common stock at \(\$ 34\), and on May 9 , it issued for cash 100,000 shares of \(\$ 5\) par preferred stock at \(\$ 7\). a. Journalize the entries for February 10 and May \(9 .\) b. What is the total amount invested (total paid-in capital) by all stockholders as of May 9?

On June 4, Magic Carpet Inc., a carpet wholesaler, issued for cash 250,000 shares of nopar common stock (with a stated value of \(\$ 3\) ) at \(\$ 12\), and on October 9, it issued for cash 25,000 shares of \(\$ 75\) par preferred stock at \(\$ 80\). a. Journalize the entries for June 4 and October 9 , assuming that the common stock is to be credited with the stated value. b. What is the total amount invested (total paid-in capital) by all stockholders as of October 9?

On January 30, Lift Time Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 18,000 shares of \(\$ 10\) par common stock with a current market price of \(\$ 15\). Journalize the entry to record the transaction.

Rocky Mountain Sounds Corp., an electric guitar retailer, was organized by Cathy Dewitt, Melody Leimbach, and Mario Torres. The charter authorized 250,000 shares of common stock with a par of \(\$ 40\). The following transactions affecting stockholders' equity were completed during the first year of operations: a. Issued 10,000 shares of stock at par to Cathy Dewitt for cash. b. Issued 750 shares of stock at par to Mario Torres for promotional services provided in connection with the organization of the corporation, and issued 20,000 shares of stock at par to Mario Torres for cash. c. Purchased land and a building from Melody Leimbach. The building is mortgaged for \(\$ 400,000\) for 20 years at \(7 \%\), and there is accrued interest of \(\$ 7,000\) on the mortgage note at the time of the purchase. It is agreed that the land is to be priced at \(\$ 125,000\) and the building at \(\$ 600,000\), and that Melody Leimbach's equity will be exchanged for stock at par. The corporation agreed to assume responsibility for paying the mortgage note and the accrued interest. Journalize the entries to record the transactions.

Newgen Products Inc., a wholesaler of office products, was organized on February 20 of the current year, with an authorization of 75,000 shares of \(2 \%\) preferred stock, \(\$ 50\) par and 400,000 shares of \(\$ 15\) par common stock. The following selected transactions were completed during the first year of operations: Feb. 20. Issued 150,000 shares of common stock at par for cash. 26\. Issued 500 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation. Mar. 6. Issued 18,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of \(\$ 50,000, \$ 275,000\), and \(\$ 60,000\), respectively. Apr. 30. Issued 20,000 shares of preferred stock at \(\$ 60\) for cash. Journalize the transactions.

The important dates in connection with a cash dividend of \(\$ 69,500\) on a corporation's common stock are May 3, June 17, and August 1. Journalize the entries required on each date.

Organic Health Co. is an HMO for businesses in the Chicago area. The following account balances appear on the balance sheet of Organic Health Co.: Common stock ( 300,000 shares authorized), \(\$ 100\) par, \(\$ 10,000,000\); Paid-in capital in excess of parcommon stock, \(\$ 2,000,000\); and Retained earnings, \(\$ 45,000,000\). The board of directors declared a \(2 \%\) stock dividend when the market price of the stock was \(\$ 125\) a share. Organic Health Co. reported no income or loss for the current year. a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.

Beaverhead Creek Inc. bottles and distributes spring water. On March 4 of the current year, Beaverhead Creek reacquired 5,000 shares of its common stock at \(\$ 90\) per share. On August 7, Beaverhead Creek sold 3,500 of the reacquired shares at \(\$ 100\) per share. The remaining 1,500 shares were sold at \(\$ 88\) per share on November 29 . a. Journalize the transactions of March 4, August 7, and November \(29 .\) b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. For what reasons might Beaverhead Creek have purchased the treasury stock?

Augusta Gardens Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On August 30 of the current year, Augusta Gardens Inc. reacquired 17,500 shares of its common stock at \(\$ 42\) per share. On October \(31,14,000\) of the reacquired shares were sold at \(\$ 45\) per share, and on November \(10,2,000\) of the reacquired shares were sold at \(\$ 48\). a. Journalize the transactions of August 30 , October 31, and November 10 . b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. What is the balance in Treasury Stock on December 31 of the current year? d. How will the balance in Treasury Stock be reported on the balance sheet?

List the errors in the following Stockholders' Equity section of the balance sheet prepared as of the end of the current year. Stockholders' Equity Paid-in capital: Preferred 2\% stock, \(\$ 150\) par \((10,000\) shares authorized and issued) ............ \(\$ 1,500,000\)

Mia Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Southwest. Mia Restaurant Corporation, which had 40,000 shares of common stock outstanding, declared a 4 -for-1 stock split (3 additional shares for each share issued). a. What will be the number of shares outstanding after the split? b. If the common stock had a market price of \(\$ 300\) per share before the stock split, what would be an approximate market price per share after the split?

Selected transactions completed by Hartwell Boating Supply Corporation during the current fiscal year are as follows: Feb. 3. Split the common stock 2 for 1 and reduced the par from \(\$ 40\) to \(\$ 20\) per share. After the split, there were 250,000 common shares outstanding. Apr. 10. Declared semiannual dividends of \(\$ 1.50\) on 18,000 shares of preferred stock and \(\$ 0.08\) on the common stock to stockholders of record on May 10 , payable on June \(9 .\) June 9. Paid the cash dividends. Oct. 10. Declared semiannual dividends of \(\$ 1.50\) on the preferred stock and \(\$ 0.04\) on the common stock (before the stock dividend). In addition, a \(2 \%\) common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at \(\$ 36\). Dec. 9. Paid the cash dividends and issued the certificates for the common stock dividend. Journalize the transactions.

Crystal Arts, Inc., had earnings of \(\$ 160,000\) for 2010 . The company had 20,000 shares of common stock outstanding during the year. In addition, the company issued 2,000 shares of \(\$ 100\) par value preferred stock on January 3,2010 . The preferred stock has a dividend of \(\$ 7\) per share. There were no transactions in either common or preferred stock during \(2010 .\) Determine the basic earnings per share for Crystal Arts.

Staples and OfficeMax are two companies competing in the retail office supply business. OfficeMax had a net income of \(\$ 91,721,000\) for a recent year, while Staples had a net income of \(\$ 973,577,000\). OfficeMax had preferred stock of \(\$ 54,735,000\) with a preferred dividend of \(7.375 \%\) on that amount. Staples had no preferred stock. The outstanding common shares for each company were as follows: \begin{tabular}{lr} & Common Shares \\ \hline OfficeMax & \(73,142,000\) \\ Staples & \(720,528,000\) \end{tabular} a. Determine the earnings per share for each company. b. Evaluate the relative profitability of the two companies.