E11-15 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. Compare effects of a stock dividend and a stock split. Instructions: Prepare a tabular summary of the effects of the alternative actions on the components of stockholders' equity and outstanding shares. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split. Before Action: common $600,000 Outstanding shares: 60,000 shares book value per share = $10 r.e. = $900,000 Stock dividend: Current price = $14.00 share. 5% dividend = $0.70 per share $0.70 per share * 60,000 shares = $42,000 After stock dividend: common $642,000 shares out =64,200 shares book value= $10 r.e. = $900,000 - $42,000 = $858,000 After Stock Split: common $600,000 shares out =120,000 book value = $5 per share R.e. = $900,000

E12-1 Max Weinberg is studying for an accounting test and has developed the following questions about investments. 1. What are three reasons why companies purchase investments in debt or stock securities? 2. Why would a corporation have excess cash that it does not need for operations? 3. What is the typical investment when investing cash for short periods of time? 4. What are the typical investments when investing cash to generate earnings? 5. Why would a company invest in securities that provide no current cash flows? 6. What is the typical stock investment when investing cash for strategic reasons? Understand debt and stock investments. Instructions: Provide answers for Max.

Companies purchase investments in debt or stock securities because they have excess cash, to generate earnings from investment income.

A corporation would have excess cash that it does not need for operations due to seasonal changes in sales and as a result of economic cycles.

The normal investment when investing cash for short periods of time is low-risk, high liquidity, shortterm securities such as government-issued securities.

The normal investments when investing cash to generate earnings are debt securities and stock securities.

A company would invest in securities that provide no current cash flows for speculative reasons. They are guessing that the investment will draw a profit.

The typical investments when investing cash for strategic reasons are stocks of companies in a related industry or in an unrelated industry that the company wishes to enter.

E12-2 Foren Corporation had the following transactions pertaining to debt investments.

Jan. 1 Purchased 50 8%, $1,000 Choate Co. bonds for $50,000 cash plus brokerage fees of $900. Interest is payable semiannually on July 1 and January 1. July 1 Received semiannual interest on Choate Co. bonds. July 1 Sold 30 Choate Co. bonds for $34,000 less $500 brokerage fees.

Journalize debt investment transactions and accrue interest Instructions: (a) Journalize the transactions. (b) Prepare the adjusting entry for the accrual of interest at December 31.

a) Jan. 1

Debt Investments Cash ($50000 + $900) Cash (50000 X 8% X 1/2) Interest Revenue Cash (34000 500) Debt Investments (50900* 3/5) Gain on Sale of Debt Investments (33500-30540)

50,900 50,900 2000 2000 33,500 30,540 2960

1-Jul

1-Jul

b) Dec. 31

Interest Receivable Interest Revenue (20000*8%*1/2)

800 800

P11-6A 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 Paid-in Capital in Excess of Par ValuePreferred Common Stock Paid-in Capital in Excess of Stated ValueCommon Treasury StockCommon (1,000 shares) Paid-in Capital from Treasury Stock Retained Earnings $ 240,000 56,000 2,000,000 5,700,000 22,000 3,000 560,000

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. Prepare entries for stock transactions and stockholders' equity section. Instructions (a) Prepare the journal entries for the: 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. (b) Prepare the stockholders' equity section at December 31, 2011. Total stockholders' equity $8,537,000

1)

Land Preferred Stock (2,400 X $100) Paid-in Capital in Excess of Par Value- preferred stock

296,000 240,000 56,000

2)

Cash (2000,000 + 5700,000) Common Stock (400,000 X $5)

7,700,000 2,000,000

Paid-in Capital in Excess of Stated Value- common stock

5,700,000

3)

Treasury StockCommon (1500*22) Cash

33,000 33,000

4)

Cash (500 X $28) Treasury StockCommon (500*22) Paid-in Capital from Treasury stock (500*6)

14,000 11,000 3,000

b) ARNOLD CORPORATION Stockholders equity Paid-in capital Capital stock 8% Preferred stock, $100 par value, noncumulative, 40,000 shares authorized, 2,400 shares issued and outstanding Common stock, no par, $5.00 stated value, 2,000,000 shares authorized, 400,000 shares issued, and 399,000 outstanding Total capital stock Additional paid-in capital In excess of par value preferred stock In excess of stated valuecommon stock From treasury stockCommon 2,000,000 2,240,000 240,000

56,000 5,700,000 3,000

Total additional paid-in capital Total paid-in capital Retained earnings Total paid-in capital and retained earnings Less: Treasury stock (1,000 common shares) Total stockholders equity

5,759,000 7,999,000 560,000 8,559,000 (22,000) 8,537,000

E13-8 Here are comparative balance sheets for Taguchi Company. TAGUCHI COMPANY Comparative Balance Sheets December 31 Assets Cash Accounts receivable Inventories Land Equipment Accumulated depreciation Total Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock ($1 par) Retained earnings $ 39,000 150,000 216,000 192,000 $ 47,000 200,000 174,000 134,000 2011 $ 73,000 85,000 170,000 75,000 260,000 (66,000) $597,000 2010 $ 22,000 76,000 189,000 100,000 200,000 (32,000) $555,000

Total Additional information: 1. Net income for 2011 was $103,000. 2. Cash dividends of $45,000 were declared and paid.

$597,000

$555,000

3. Bonds payable amounting to $50,000 were redeemed for cash $50,000. 4. Common stock was issued for $42,000 cash. 5. No equipment was sold during 2011, but land was sold at cost. Prepare a statement of cash flowsindirect method. Instructions: Prepare a statement of cash flows for 2011 using the indirect method.

E14-3 The comparative condensed balance sheets of Conard Corporation are presented below. CONARD CORPORATION Comparative Condensed Balance Sheets December 31 2012 Assets Current assets Property, plant, and equipment (net) Intangibles Total assets Liabilities and stockholders' equity Current liabilities Long-term liabilities Stockholders' equity $ 42,000 143,000 15,000 $ 48,000 150,000 12,000 $ 74,000 99,000 27,000 $ 80,000 90,000 40,000 2011

$200,000 $210,000

Total liabilities and stockholders' equity $200,000 $210,000 Prepare horizontal and vertical analyses.

Instructions (a) Prepare a horizontal analysis of the balance sheet data for Conard Corporation using 2011 as a base. (b) Prepare a vertical analysis of the balance sheet data for Conard Corporation in columnar form for 2012.