Ans Doc445


1. Gray Corp. had the following stockholders’ equity section on its balance sheet at December 31, 2004:
Preferred stock, 6%, $50 par, 100,000 shares authorized, 40,000 shares issued and outstanding $20,00,000
Common stock, $1 par, 1,000,000 shares authorized, 300,000 shares issued 300,000
Paid-in capital in excess of par—common 4,700,000
Retained earnings 36,000,000
Accumulated other comprehensive income (800,000)
Common treasury shares at cost (10,000 shares, at cost) (320,000)
Total stockholders’ equity $41,880,000
During 2005 the following events occurred related to stockholders’ equity:
a. Sold 3,000 shares of the treasury stock to employees for $20 per share.
b. Declared and distributed a property dividend of securities held by Gray to common stockholders. The securities had a carrying value of $400,000. The fair market value of the securities was $750,000 on the date of declaration, $760,000 on the date of record, and $756,000 on the date of distribution.
c. Declared a 5 percent stock dividend when the market price of the common stock was $40 per share.
d. Declared and paid the annual cash dividend to preferred stockholders.
Prepare the journal entries for the preceding events.
2. Forsythe Corp. received its corporate charter to issue 1,000,000 shares of $100 par value, 5 percent convertible preferred stock and 10,000,000 shares of $1 par value common stock on January 15, 2004. Each share of preferred stock is convertible into five shares of common stock at the stockholder’s option. Since this is a new company, the stock is not yet traded. The following events, related to stockholders’ equity, occurred during 2004:
a. Issued 1,000,000 shares of common stock to initial stockholders at $9 per share.
b. Issued 300,000 shares of the convertible preferred stock at par.
c. Issued 400,000 shares of common stock for land that was appraised at $3,500,000.
d. Repurchased 10,000 shares of the common stock for $8 per share.
e. Issued 2,000 shares of the repurchased common stock to employees for $7 per share.
f. Converted 5,000 shares of preferred stock to common.
g. Declared and immediately paid the preferred stock dividend.
Prepare the journal entries for the above transactions.
3. Assume that on January 1, 2008, Weber Company issues bonds with a face value of $300,000 that pay 8 percent interest, semiannually (4 percent per period) and mature in 10 years. Assume that the market interest rate at the date of issuance is 10 percent (5 percent per semiannual period).
Compute the price of the bond.
Record the journal entry for the bond issuance on January 1, 2008.
4. Assume that on April 1, 2008, Austin Company issues, at 102 plus accrued interest, 10-year bonds with a face value of $100,000 and a face interest rate of 5 percent. Interest is paid semiannually on June 30 and December 31. The bond is dated January 1, 2008, and will be due on January 1, 2018. Record the journal entry for the bond issuance on March 1, 2008.
Assume that a company issues bonds with a $150,000 face value at 100 and must pay $8,000 of costs associated with the issuance. Assume that the life of the bond is five years and that the company amortizes bond issue costs on a straight-line basis each semiannual period. What is the amount of cash received from the bond issuance?
Assume that a bond is issued with the following characteristics:
Date of bonds: January 1, 2008; maturity date: January 1, 2013; face value: $300,000; face interest rate: 10 percent paid semiannually (5 percent per period); market interest rate: 8 percent (4 percent per semiannual period); issue price: $324,333; bond premium is amortized using the straight-line method of amortization. What is the amount of bond premium amortization for the June 30, 2008, adjusting entry?
What is the carrying value of the bonds on June 30, 2009?