Page 515 - Accounting Principles (A Business Perspective)

12. Stockholders' equity: Classes of capital stock

The outstanding capital stock of the corporation consisted of 2,000 shares of preferred stock with a par value of
USD 480 per share that pays a dividend of USD 19.20 per year and 8,000 shares of no-par common stock with a
stated value of USD 240 per share. No dividends were in arrears as of 2005 January 1.

Prepare schedules showing how the net income for these five years was distributed to the two classes of stock if
in each of the years the entire current net income was distributed as dividends and the preferred stock was:
a. Cumulative.
b. Noncumulative.
Alternate problem B On 2009 January 1, Cowling Company was authorized to issue 500,000 shares of USD
5 par value common stock. It then completed the following transactions:
2009

Jan. 14 Issued 90,000 shares of common stock at USD 24 per share for cash.
29 Gave the promoters of the corporation 50,000 shares of common stock for their services in organizing the
company. The board of directors valued these services at USD 620,000.
Feb. 19 Exchanged 100,000 shares of common stock for the following assets at the indicated fair market values:
Equipment USD 180,000
Building 440,000
Land 600,000
a. Prepare general journal entries to record the transactions.
b. Prepare the balance sheet of the company as of 2009 March 1.

Alternate problem C On 2009 July 3, Barr Company was authorized to issue 15,000 shares of common stock;
3,000 shares were issued immediately to the incorporators of the company for cash at USD 320 per share. On July
5 of that year, an additional 300 shares were issued to the incorporators for services rendered in organizing the
company. The board valued these services at USD 96,000. On 2009 July 6, legal and printing costs of USD 12,000
were paid. These costs related to securing the corporate charter and the stock certificates.
a. Set up T-accounts and post these transactions. Then prepare the balance sheet of the Barr Company as of the
close of 2009 July 10, assuming the authorized stock has a USD 160 par value.

b. Repeat (a) for the T-accounts involving stockholders' equity, assuming the stock is no-par stock with a USD
240 stated value. Prepare the stockholders' equity section of the balance sheet.
c. Repeat (a) for the T-accounts involving stockholders' equity, assuming the stock is no-par stock with no stated
value. Prepare the stockholders' equity section of the balance sheet.
Alternate problem D Tempo Company received its charter on 2009 April 1, authorizing it to issue: (1) 10,000
shares of USD 400 par value, USD 32 cumulative, convertible preferred stock; (2) 10,000 shares of USD 12
cumulative no-par preferred stock having a stated value of USD 20 per share and a liquidation value of USD 100
per share; and (3) 100,000 shares of no-par common stock without a stated value.
On April 2, incorporators of the corporation acquired 50,000 shares of the common stock for cash at USD 80

per share, and 200 shares were issued to an attorney for services rendered in organizing the corporation. On April
3, the company issued all of its authorized shares of USD 32 convertible preferred stock for land valued at USD
1,600,000 and a building valued at USD 4,800,000. The property was subject to a mortgage of USD 2,400,000. On
April 8, the company issued 5,000 shares of the USD 12 preferred stock in exchange for a patent valued at USD
1,040,000. On April 10, the company issued 1,000 shares of common stock for cash at USD 80 per share.
a. Prepare general journal entries for these transactions.

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