Question 1
Indicate whether each of the following statements is true or false.
1. The corporation is an entity separate and distinct from its owners.
2. The liability of stockholders is normally limited to their investment in the corporation.
3. The relative lack of government regulation is an advantage of the corporate form of business.
4. There is no journal entry to record the authorization of capital stock.
5. No-par value stock is quite rare today.
Question 2
On October 31, the stockholders' equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two courses of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.
Complete the tabular summary of the effects of the alternative actions on the components of stockholders' equity and outstanding shares. (If answer is zero, please enter 0. Do not leave any fields blank.)
Before Action After Stock Dividend After Stock Split
Stockholders' equity
Paid-in capital
Common Stock $
$
Question 3
Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.
1. The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.
Prepare the correcting entries at December 31. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)
Question 4
Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the following balances pertaining to stockholders' equity.
Preferred Stock $240,000
Paid-in Capital in Excess of Par Value-Preferred 56,000
Common Stock 2,000,000
Paid-in Capital in Excess of Stated Value-Common 5,700,000
Treasury Stock-Common (1,000 shares) 22,000
Paid-in Capital from Treasury Stock 3,000
Retained Earnings 560,000
The preferred stock was issued for land having a fair market value of $296,000. All common stock issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share. No dividends were declared in 2011.
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Prepare the journal entries for the: (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)
1. Issuance of preferred stock for land.
2. Issuance of common stock for cash.
3. Purchase of common treasury stock for cash.
4. Sale of treasury stock for cash.
Question 5
The following stockholders' equity accounts arranged alphabetically are in the ledger of McGrath Corporation at December 31, 2011.
Common Stock ($10 stated value) $1,500,000
Paid-in Capital from Treasury Stock 6,000
Paid-in Capital in Excess of Stated Value-Common Stock 690,000
Paid-in Capital in Excess of Par Value-Preferred Stock 288,400
Preferred Stock (8%, $100 par, noncumulative) 400,000
Retained Earnings 776,000
Treasury Stock-Common (8,000 shares) 88,000
Complete the stockholders' equity section at December 31, 2011. (List entries by the format used in the text. Enter all amounts as positive amounts and subtract where necessary.)
MCGRATH CORPORATION
Stockholders' equity
Paid-in capital
Question 6
Thomas Magnum began operations as a private investigator on January 1, 2011. The trial balance columns of the worksheet for Thomas Magnum, P.I., Inc. at March 31 are as follows.
THOMAS MAGNUM, P.I., INC.
Worksheet
For the Quarter Ended March 31, 2011
Trial Balance
Account Titles Dr. Cr.
Cash 11,400
Accounts Receivable 5,620
Supplies 1,050
Prepaid Insurance 2,400
Equipment 30,000
Notes Payable 10,000
Accounts Payable 12,350
Common Stock 20,000
Dividends 600
Service Revenue 13,620
Salaries Expense 2,200
Travel Expense 1,300
Rent Expense 1,200
Miscellaneous Expense 200
55,970 55,970
Other data:
1. Supplies on hand total $380.
2. Depreciation is $1,000 per quarter.
3. Interest accrued on 6-month note payable, issued January 1, $300.
4. Insurance expires at the rate of $200 per month.
5. Services provided but unbilled at March 31 total $530.
Prepare worksheet, financial statements, and adjusting and closing entries.
(SO 1, 2, 3, 6)
Instructions
(a) Enter the trial balance on a worksheet and complete the worksheet.
Adjusted trial balance $57,800
(b) Prepare an income statement and a retained earnings statement for the quarter and a classified balance sheet at March 31.
Net income $6,680
Total assets $48,730
(c) Journalize the adjusting entries from the adjustments columns of the worksheet.
(d) Journalize the closing entries from the financial statement columns of the worksheet.
Question 7
The adjusted trial balance columns of the worksheet for Porter Company are as follows.
PORTER COMPANY
Worksheet
For the Year Ended December 31, 2011
Adjusted Trial Balance
Account No. Account Titles Dr. Cr.
101 Cash 18,800
112 Accounts Receivable 16,200
126 Supplies 2,300
130 Prepaid Insurance 4,400
151 Office Equipment 44,000
152 Accumulated Depreciation—Office Equipment 20,000
200 Notes Payable 20,000
201 Accounts Payable 8,000
212 Salaries Payable 2,600
230 Interest Payable 1,000
311 Common Stock 30,000
320 Retained Earnings 6,000
332 Dividends 12,000
400 Service Revenue 77,800
610 Advertising Expense 12,000
631 Supplies Expense 3,700
711 Depreciation Expense 8,000
722 Insurance Expense 4,000
726 Salaries Expense 39,000
905 Interest Expense 1,000
Totals 165,400 165,400
Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.
(SO 1, 2, 3, 6)
Instructions
(a) Complete the worksheet by extending the balances to the financial statement columns.
Net income $10,100
(b) Prepare an income statement, a retained earnings statement, and a classified balance sheet. $10,000 of the notes payable become due in 2012.
Current assets $41,700
Current liabilities $21,600
(c) Prepare the closing entries. Use J14 for the journal page.
(d) Post the closing entries. Use the three-column form of account. Income Summary is account No. 350.
(e) Prepare a post-closing trial balance.
Post-closing trial balance $85,700
Answer will be sent by email as attachment.
