Question

1.) Presented below is information related to Wally Company:

Prepare the general journal entries necessary to record the following transactions:

(a) The company is granted a charter that authorizes issuance of 15,000 shares of $100 par value preferred stock and 40,000 shares of no-par common stock.

(b) 12,000 shares of common stock are issued to the founders of the corporation for land valued by the board of directors at $400,000. The board established a stated value of $10 per share for the common stock.

(c) 6,000 shares of preferred stock are sold for cash at $110 per share.

(d) The company issues 200 shares of common stock to its attorneys for costs associated with starting the company. At the time, the stock was selling at $60 per share.

2.) Energy Company's balance sheet reports the following: Common stock, $20 par $3,000,000 Paid-in capital in excess of par 1,050,000 Retained earnings 750,000 Required:

Record the following transactions using the cost method.

(a) Bought 12,000 shares of its common stock at $29 per share.

(b) Sold 6,000 treasury shares at $30 per share.

(c) Sold 3,000 shares of treasury stock at $26 per share.

3.) Fusion Corporation has the following capital structure at the beginning of the year:

5% Preferred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding $ 300,000

Common stock, $10 par value, 60,000 shares authorized, 40,000 shares issued and outstanding 400,000

Paid-in capital in excess of par 110,000 Total paid-in capital 810,000

Retained earnings 440,000

Total stockholders' equity $1,250,000

Record the following transactions which occurred consecutively:

(a) A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts.

(b) A 15% common stock dividend was declared. The average fair value of the common stock is $25 per share.

4.) Kale Company has the following securities in its portfolio of equity securities on December 31, 2018: Cost Fair Value

5,000 shares of Tom Corp. common stock $151,000 $139,000

10,000 shares of Giant Corp.common stock 184,000 190,000

  $335,000 $329,000

All of the securities had been purchased in 2018. In 2019, Kale completed the following securities transactions:

March 1: Sold 5,000 shares of Tom Corp. common stock @ $32 less fees of $1,500.

April 1:   Bought 600 shares of Wort Stores common stock @ $45 plus fees of $550.

The Kale Company portfolio of equity securities appeared as follows on December 31, 2019:    Cost   Fair Value

10,000 shares of Giant Corp. common stock $184,000 $195,500

600 shares of Wort Stores common stock 27,550 25,500

$211,550 $221,000

Prepare the following general journal entries for Kale Company for the:

(a) 2018 adjusting entry

(b) sale of the Tom Corp. stock

(c) purchase of the Wort Stores stock.

(d) 2019 adjusting entry.

5.) Ralph, Inc., has $800,000 of 4% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2017 and 2018. On December 31, 2019, Ralph declared $270,000 in dividends.

How much will the preferred and common stockholders receive under each of the following assumptions?

(a) The preferred is noncumulative and nonparticipating.

(b) The preferred is cumulative and nonparticipating.

6.) Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Cane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Huck Company.

  (a) Fair Value Method (b) Equity Method

Investment / Dividend Investment / Investment

Transaction   Account / Revenue Account / Revenue

——————————————————————————————————————————

(a) At the beginning of Year 1, Cane bought 30% of Huck's common stock at its book value. Total book value of all Huck's common stock was $800,000 on this date. ————————————————————————————————————————

(b) During Year 1, Huck reported $60,000 of net income and paid $30,000 of dividends. ——————————————————————————————————————————

(c) During Year 2, Huck reported $30,000 of net income and paid $20,000 of dividends. ——————————————————————————————————————————

(d) During Year 3, Huck reported a net loss of $10,000 and paid $4,000 of dividends. ——————————————————————————————————————————

(e) Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue. ——————————————————————————————————————————

Answer 1

Answer to Q#1 (First question in the list): S.No. a) Debit $0 b) $400,000 Account Titles and Explanation No Entry No Entry Land Common Stock Paid-in-Capital Stock in Excess of Stated-Common Cash Preferred Stock Paid-in-Capital Stock in Excess of Par-Preferred Formation Expenses (or) Attorney Fees Common Stock Paid-in-Capital Stock in Excess of Stated-Common Credit [As it is just a signing of charter activity] $0 [No business transaction is involved] [Fair value of the land] $120,000 (12,000 shares x $10] $280,000 [$400000 - $120000 --> Balancing figure] [6,000 shares x $110] $600,000 [6,000 shares x $100] $60,000 ($660000 - $600000 --> Balancing figure] [200 shares x $60] $2,000 (200 shares x $10] $10,000 ($12000 - $2000 --> Balancing figure] $660,000 d) $12,000