Chapter 15 Examples

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Example #1 - Stock issued with other securities (Lump-sum sales) (a) Lahiri Corporation issued 300 shares of $10 per value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the preferred stock has a market value of $90 per share. Prepare the journal entry to record the issuance. (b) Lahiri Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the value of preferred stock is unknown. Prepare the journal entry to record the issuance.

(a) # of shares (x) Market Value of shares = Total Market Value C/S: 300 (x) $20 = 6,000 P/S: 100 (x) $90 = 9,000 9,000 + 6,.000 = 15,000 6,000 / 15,000 = 40% 9,000 / 15,000 = 60% (13,500 = selling price) 13,500 (x) 40% = 5,400 13,500 (x) 60% = 8,100 5,400 + 8,100 = 13,500 Cash 13,500 P/S (100 x $50) 5,000 APIC-P/S 3,100 C/S (300 x $10) 3,000 APIC-C/S 2,400 (b) # of shares (x) Market Value of shares = Total Market Value C/S: 300 (x) $20 = 6,000 P/S: 100 (x) ? = ? 13,500 (-) 6,000 = 7,500 = P/S Cash 13,500 C/S (300 x $10) 3,000 APIC-C/S (6,000 - 3,000) 3,000 P/S (100 x $50) 5,000 APIC-P/S (7,500 - 5,000) 2,500

Example #5 - Dividends The following data was taken from the balance sheet accounts of Morgan Corporation on December 31, 2017. Current Assets:_______________________________________________________________$540,000 Debt Instruments:_____________________________________________________________624,000 Common Stock (par value $10):__________________________________________600,000 Paid-in Capital in Excess of Par - Common Stock:__________________150,000 Retained Earnings:____________________________________________________________840,000 Prepare the required journal entries for the following unrelated (independent) items. (a) Property Dividend. A dividend is declared January 5, 2018 and paid January 25, 2018, in bonds held as an investment. The bonds have a book value of $90,000 and a fair value of $125,000. (b) Liquidating Dividend. A dividend is issued to common stockholders for $500,000. The cash dividend announcement noted that stockholders should consider $100,000 as a return of capital. (c) Stock Dividend. A 5% stock dividend is declared and distributed at a time when the market price is $39 per share. (d) Stock Split. The par value of the capital stock is reduced to $2 with a 5 for 1 stock split.

(a) Date of declaration: Bonds Investment (125k - 90k)_________________________________35,000 _____Unrealized Gain___________________________________________________________35,000 Retained Earnings________________________________________________125,000 _____Property Dividends Payable_________________________________________125,000 Date of Payment: Property Dividends Payable__________________________________125,000 _____Bonds Interest____________________________________________________________125,000 (b) Date of Declaration: Retained Earnings_____________________________________________400,000 Additional Paid-in Capital - Common Stock___________100,000 _____Dividends Payable_____________________________________________________500,000 Date of Payment: Dividends Payable_____________________________________________500,000 _____Cash________________________________________________________________________500,000 (c) Date of Declaration: Retained Earnings__________________________________________________117,000 _____Common Stock Dividends Distribution (3k x 10)_______________30,000 _____Additional Paid-in Capital - Common Stock_____________________87,000 (d)

Example #3 - Reacquisition of shares Before Castellano Corporation engages in the treasury stock transactions below, its general ledger reflects the following account balances (par value of stock is $30 per share): Common Stock: $270,000 (total par sold) Additional Paid-in Capital - Common Stock: 99,000 Retained Earnings: 80,000 Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes. (a) Bought 380 shares of treasury stock at $40 per share (b) Bought 300 shares of treasury stock at $45 per share (c) Sold 350 shares of treasury stock at $41 per share (d) Sold 110 shares of treasury stock at $38 per share (e) Retired 50 shares of treasury stock that originally sold for $35 per share.

(a) T/S (380 x $40) 15,200 Cash 15,200 (b) T/S (300 x $45) 13,500 Cash 13,500 (c) Cash (350 x $41) 14,350 T/S (350 x $40) 14,000 APIC-T/S 350 (d) Cash (110 x $38) 4,180 APIC-T/S 350 R/E 270 T/S 4,800 [((30 x 40) + (80 x 45)) = 4,800] (e) C/S (50 x $35) 1,500 APIC-C/S 250 R/E 500 T/S (50 x $45)

The following series of transactions illustrates the procedure of recording the issuance of 10,000 shares of $10 par value common stock for a patent for Marlowe Company, in various circumstances. 1. Marlowe cannot readily determine the fair value of the patent, but it knows the fair value of the stock is $140,000. 2. Marlowe cannot readily determine the fair value of the stock, but it determines the fair value of the patent is $150,000. 3. Marlowe cannot readily determine the fair value of the stock nor the fair value of the patent. An independent consultant values the patent at $125,000 based on discounted expected cash flows.

1. Patents 140,000 Common Stock 100,000 APIC-C/S 40,000 2. Patents 150,000 Common Stock 100,000 APIC-C/S 50,000 3. Patents 125,000 Common Stock 100,000 APIC-C/S 25,000

Example #2 - Issuance of Stock Shulman & Associates, Inc. was organized on January 1, 2016. It authorized to issue 10,000 shares of 8%, $50 par value preferred stock, and 500,000 shares of no-par common stock with stated value of $2 per share. The following stock transactions were completed during the first year: Jan. 10: Issued 80,000 shares of common stock for cash at $5 per share. Mar. 1: Issued 5,000 shares of preferred stock for cash at $108 per share. Apr. 1: Issued 24,000 shares of common stock for land. The asking price for the land was $90,000; the fair value of the land was $80,000. May 1: Issued 80,000 shares of common stock for cash at $7 per share. Also incurred $1,500 of cost associated with issuing the stock. Aug. 1: Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000 for services rendered in helping organize the company. Prepare the journal entries for the above transactions:

1/10: Cash 400,000 C/S (80k x $2) 160,000 APIC-C/S 240,000 3/1: Cash 540,000 P/S (5,000 x $50) 250,000 APIC-P/S 290,000 4/1: Land 80,000 C/S (24k x $2) 48,000 APIC-C/S 32,000 5/1: Cash (80k x$7) 560,000 C/S (80K x $2) 160,000 APIC-C/S 400,000 APIC-C/S 1,500 Cash 1,500 OR Cash 558,500 C/S (80K x $2) 160,000 APIC-C/S 398,500 8/1: Organ Expense 50,000 C/S (10k x $2) 20,000 APIC-C/S 30,000

Roadway Freight Corp. on June 10 declared a cash dividend of 50 cents a share on 1.8 million shares payable July 16 too all stockholders of record June 24. What is the journal entry to record the date of declaration, date of record, and date of payment?

At Date of Declaration (June 10): Retained Earnings (.50 x 1.8mil) 900,000 Dividends Payable 900,000 At Date of Record (June 24): NO JOURNAL ENTRY AT Date of Payment (July 16): Dividends Payable 900,000 Cash 900,000

If a company issued 1,000 of the shares with a $5 stated value at $15 per share for cash, what is the entry it should make?

Cash______________________________________________________________________15,000 _____Common Stock (@ stated value)______________________________________5,000 _____Paid-in Capital in Excess of Stated value__________________________10,000

Video Electronics Corporation is Organized with 10,000 shares authorized without par value. If Video Electronics issues 500 shares for cash at $10 per share, it makes the following entry.

Cash______________________________________________________________________5,000 _____Common Stock_____________________________________________________________5,000

Blue Diamond Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Blue Diamond's journal entry.

Cash_______________________________________________________________________4,500 _____Common Stock (300 x $10)_____________________________________________3,000 _____Paid-In Capital in Excess of Par________________________________________1,500


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