Page 513 - Accounting Principles (A Business Perspective)

12. Stockholders' equity: Classes of capital stock

Problem C In the corporate charter that it received on 2009 May 1, Norris Company was authorized to issue
15,000 shares of common stock. The company issued 1,000 shares immediately for USD 82 per share, cash.
On July 2, the company issued 100 shares of stock to a lawyer to satisfy a USD 8,400 bill for legal services

rendered in organizing the corporation.
On July 5, the company issued 1,000 shares to the principal promoter of the corporation in exchange for a
patent. Another 200 shares were issued to this same person for costs incurred and services rendered in bringing the
corporation into existence. The market value of the stock was USD 84 per share.
a. Set up T-accounts, and post these transactions. Then prepare a balance sheet for the Norris Company as of
2009 July 5, assuming the authorized stock has a par value of USD 75 per share.
b. Repeat part (a) for the stockholders' equity accounts, and prepare the stockholders' equity section of the July

5 balance sheet assuming the stock authorized has no par value but has a USD 30 per share stated value.
c. Repeat part (a) for the stockholders' equity accounts assuming the stock authorized has neither par nor stated
value. Prepare the stockholders' equity section of the balance sheet.
Problem D On 2009 May 1, Farmington Company received a charter that authorized it to issue:
• 4,000 shares of no-par preferred stock to which a stated value of USD 12 per share is assigned. The stock is
entitled to a cumulative dividend of USD 9.60, convertible into two shares of common stock, callable at USD
208, and entitled to USD 200 per share in liquidation.
• 1,500 shares of USD 400 par value, USD 20 cumulative preferred stock, which is callable at USD 420 and

entitled to USD 412 in liquidation.
• 60,000 shares of no-par common stock to which a stated value of USD 40 is assigned.
May 1 All of the USD 9.60 cumulative preferred was issued at USD 204 per share, cash.
2 All of the USD 20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued
at USD 128,000, USD 160,000, and USD 425,000, respectively.
3 Cash of USD 15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing
services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all

of the services (including those paid in cash) was USD 55,000.
a. Prepare journal entries for these transactions.
b. Assume that retained earnings were USD 200,000. Prepare the stockholders' equity section of the 2009 May
31, balance sheet.
Problem E On 2008 January 2, the King Company received its charter. It issued all of its authorized 3,000
shares of no-par preferred stock at USD 104 and all of its 12,000 authorized shares of no-par common stock at USD
40 per share. The preferred stock has a stated value of USD 50 per share, is entitled to a basic cumulative dividend
of USD 6 per share, is callable at USD 106 beginning in 2010, and is entitled to USD 100 per share plus cumulative
dividends in the event of liquidation. The common stock has a stated value of USD 10 per share.

On 2009 December 31, the end of the second year of operations, retained earnings were USD 90,000. No
dividends have been declared or paid on either class of stock.
a. Prepare the stockholders' equity section of King Company's 2009 December 31, balance sheet.
b. Compute the book value of each class of stock.
c. If USD 42,000 of dividends were declared as of 2009 December 31, compute the amount paid to each class of
stock.

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