Recording the Issuances of Common Stock

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.
Jan 10 Issued 80,000 shares for cash at $6 per share.
Mar 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to
July 1 Issued 30,000 shares for cash at $8 per share.
Sept 1 Issued 60,000 shares for cash at $10 per share.

Instructions
(a) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per shar
(b) Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value

(a) debit credit

Jan 10 Cash 480,000
Common Stock 400,000
Paid-In Capital in Excess of Par - Common Stock 80,000

Mar 1 Legal Fees 35,000

Common Stock 25,000
Paid-In Capital in Excess of Par - Common Stock 10,000

July 1 Cash 240,000

Common Stock 150,000
Paid-In Capital in Excess of Par - Common Stock 90,000

Sept 1 Cash 600,000

Common Stock 300,000
Paid-In Capital in Excess of Par - Common Stock 300,000

(b)
Jan 10 Cash 480,000
Common Stock 240,000
Paid-In Capital in Excess of Par - Common Stock 240,000

Mar 1 Legal Fees 35,000

Common Stock 15,000
Paid-In Capital in Excess of Par - Common Stock 20,000

July 1 Cash 240,000

Common Stock 90,000
Paid-In Capital in Excess of Par - Common Stock 150,000

Sept 1 Cash 600,000

Common Stock 180,000
Paid-In Capital in Excess of Par - Common Stock 420,000
ning to its common stock.

ed in helping the company to incorporate.

has a par value of $5 per share.

is no-par with a stated value of $3 per share.
Stock Issuances and Repurchase

Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2014, Lindsey Hunter t
1 Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.
2 Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchan
3 Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued in 2010 at $40

Instructions
(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.
(c) Prepare the journal entry to record item 3 using the cost method.

debit credit
(a) Cash 218,000
Common Stock 25,000
Paid-In Capital in Excess of Par - Common Stock 193,000

(b) Land 46,000

Common Stock 5,000
Paid-In Capital in Excess of Par - Common Stock 41,000

(c) Treasury Stock 21,500

Cash 21,500
During 2014, Lindsey Hunter took part in the following selected transactions.
stock totaling $7,000.
ed on a national stock exchange at approximately $46 per share on the date of issuance.
ed were issued in 2010 at $40 per share.
Entries for Stock Dividends and Stock Splits

The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2014.
Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.

$ 3,000,000 Common stock, $10 par, 300,000 shares issued and outstanding
1,200,000 Paid-in capital in excess of par—common stock
5,600,000 Retained earnings

Instructions
Prepare the appropriate journal entries for each of the following cases.
(a) A stock dividend of 5% is declared and issued.
(b) A stock dividend of 100% is declared and issued.
(c) A 2-for-1 stock split is declared and issued.

debit credit
(a) Retained Earnings 555,000
Common Stock Dividend Distributable 150,000
Paid-in Capital in Excess of Par—Common Stock 405,000
Common Stock Dividend Distributable 150,000
Common Stock 150,000

(b) Retained Earnings 3,000,000

Common Stock Dividend Distributable 3,000,000
Common Stock Dividend Distributable 3,000,000
Common Stock 3,000,000

No entry. Stock split does not require a journal entry as the

(c)
stocks are doubled and par reduced by half.
n December 31, 2014.
Dividends and Stockholders’ Equity Section

Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2013, balance s

Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued) $ 200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) $ 100,000
Additional paid-in capital $ 125,000
Retained earnings $ 450,000
Total $ 875,000

During 2014, Cleves took part in the following transactions concerning stockholders’ equity.
1 Paid the annual 2013 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. T
2 Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method.
3 Reissued 700 treasury shares for land valued at $30,000.
4 Issued 500 shares of preferred stock at $105 per share.
5 Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6 Issued the stock dividend.
7 Declared the annual 2014 $10 per share dividend on preferred stock and the $2 per share dividend on common s

Instructions
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2014, stockholders’ equity section. Assume 2014 net income was $330,000.

debit credit
(a-1) Dividends payable - preferred 20,000
Dividends payable - common 40,000
Cash 60,000

(a-2) Treasury Stock 68,000

Cash 68,000

(a-3) Land 30,000

Treasury Stock 28,000
Paid-In From Treasury Stock 2,000

(a-4) Cash 52,500

Preferred Stock 50,000
Paid-In Capital in Excess of Par - preferred 2,500

(a-5) Retained Earnings 85,500

Common Stock Dividend Payable 9,500
Paid-In Capital in Excess of Par - common 76,000

(a-6) Common Stock Dividend Payable 9,500

Common Stock 9,500
(a-7) Retained Earnings 66,800
Dividends payable - preferred 25,000
Dividends payable - common 41,800

(b) Anne Cleves Company

Stockholders' Equity
31-Dec-14
Capital Stock
Preferred stock, 10%, $100 par (10,000 shares authorized, $ 250,000
2,500 shares issued and outstanding)
Common stock, $5 par (100,000 shares authorized, 21,900 shares 109,500
issued, 20,900 shares outstanding)
Total Capital Stock 359,500
Additional Pain-In Capital 205,500
Total Paid-in Capital 565,000
Retained Earnings 627,700
1,192,700
less cost of treasury stock 40,000
total stockholders equity 1,152,700
f its December 31, 2013, balance sheet.

hare dividend on common stock. These dividends had been declared on December 31, 2013.
e. Cleves uses the cost method.

ock is selling for $45 per share.

2 per share dividend on common stock. These dividends are payable in 2015.

t income was $330,000.

preferred common
2,000 20,000
500 1,700
700
2,500 19,000
1,900
20,900 1,000
Conversion of Bonds

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds
were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a
straight-line basis.

On April 1, 2015, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued
interest was paid in cash at the time of conversion.

Instructions
Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was
(a)
credited when the bonds were issued.
Prepare the entry(ies) to record the conversion on April 1, 2015. (Book value method is used.) Assume that the
(b)
entry to record amortization of the bond discount and interest payment has been made.

(a) Interest Expense 66,667 4,000,000

Interest Payable 136,045 3,920,000
Discount on Bonds Payable 2,712 80,000
Cash 200,000
678

(b) Bond Payable 1,500,000 30,000

Discount on Bonds Payable 27,458 2,542
Common Stock 600,000 27,458
Pain-in Capital in Excess of Par 872,542
interest. The bonds
miannually on a

mmon stock. Accrued

nterest payable was

d.) Assume that the

Issuance of Bonds with Warrants

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussi
with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at
rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and t
value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

Instructions
(a) What entry should be made at the time of the issuance of the bonds and warrants?
(b) If the warrants were nondetachable, would the entries be different? Discuss.

(a) Cash 152,000 bond value

Discount on bonds payable 40,800 warrant value
Bonds payable 170,000
Paid-in capital - stock warrants 22,800

(b) When warrants are non-detachable, they are treated the same as convertible debts.
 pon rate of 10%. In discussions
arrants should be issued at the
dered to be $136,000, and the
000.

129,200
22,800
152,000
Entries for Held-to-Maturity Securities

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are
dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are
classified in the held-to-maturity category.

Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest received for 2013.
(c) Prepare the journal entry to record the interest received for 2014.

(a) 1-Jan-13 debt investments 300,000

cash 300,000

(b) 31-Dec-13 cash 36,000

interest revenue 36,000

(c) 31-Dec-14 cash 36,000

interest revenue 36,000
 300,000. They are
h year. The bonds are
Entries for Available-for-Sale Securities

On January 1, 2013, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bon
a 10% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year.
effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale.

The fair value of the bonds at December 31 of each year-end is as follows.

2013 $ 320,500
2014 309,000
2015 308,000
2016 310,000
2017 300,000

Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entries to record the interest received and recognition of fair value for 2013.
(c) Prepare the journal entry to record the recognition of fair value for 2014.

(a) 1-Jan-13 debt investment 322,744.44

cash 322,744.44

(b) 31-Dec-13 cash 36,000.00

debt investment 3,725.56
interest revenue 32,274.44
fair value adjustment 1,481.12
unrealized holding gain or loss - equity 1,481.12

(c) 31-Dec-14 unrealized holding gain or loss - equity 7,401.89

fair value adjustment 7,401.89
or $322,744.44. The bonds provide the bondholders with
ember 31 of each year. Hi and Lois Company uses the
ailable-for-sale.

1/1/2013
12/1/2013 36,000.00 32,274.44 3,725.56
12/1/2014 36,000.00 31,901.89 4,098.11
12/1/2015 36,000.00 31,492.08 4,507.92
12/1/2016 36,000.00 31,041.28 4,958.72
12/1/2017 36,000.00 30,545.41 5,454.14
180,000.00 157,255.11 22,744.44
322,744.44
319,018.88
314,920.77
310,412.85
305,454.13
300,000.00
Trading Securities Entries

On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.
December 31, 2013
Investments (Trading) Cost Fair Value Unrealized Gain (Los
Clemson Corp. stock $ 20,000 $ 19,000
Colorado Co. stock 10,000 9,000
Buffaloes Co. stock 20,000 20,600
Total of portfolio 50,000 48,600
Previous fair value adjustment balance
Fair value adjustment—Cr.

During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Co
stock—$19,100; Buffaloes Co. stock—$20,500.

Instructions
(a) Prepare the adjusting journal entry needed on December 31, 2013.
(b) Prepare the journal entry to record the sale of the Colorado Company stock during 2014.
(c) Prepare the adjusting journal entry needed on December 31, 2014.

(a) 31-Dec-13 unrealized holding gain or loss - income 1,400

fair value adjustment 1,400

(b) 2014 cash 9,400

loss on sale of investments 600
equity investments 10,000

(c) 31-Dec-14 fair value adjustment 1,000

unrealized holding gain or loss - income 1,000
g its trading securities.
December 31, 2014
Unrealized Gain (Loss) Fair Value
$ (1,000) 19,100 (900)
(1,000)
600 20,500 500
(1,400) (400)
- (1,400)
$ (1,400) (1,000)

31, 2014, was Clemson Corp.

Equity Method

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends
each year.

Instructions
Use the information in the following T-account for the investment in Sub to answer the following questions.
Investment in Sub Co.
1,000,000
110,000
44,000

(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?
(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?
(c) What was Sub Co.’s total net income for the year?
(d) What was Sub Co.’s total dividends for the year?

(a) 110,000
(b) 44,000
(c) 440,000
(d) 176,000
40% of net income in dividends

ollowing questions.
Fair Value and Equity Method Compared

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The
purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June
30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock wa
$27 per share at December 31, 2014.

Instructions
Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significan
(a) influence over Kulikowski. The securities should be classified as available-for-
sale.
Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant
(b)
influence over Kulikowski.

At what amount is the investment in securities reported on the balance sheet under each of these methods at
(c)
December 31, 2014? What is the total net income reported in 2014 under each of these methods?

(a) 31-Dec-13 Equity investments 1,200,000

Cash 1,200,000
30-Jun-14 Cash 42,500
Dividend Revenue 42,500
31-Dec-14 Cash 42,500
Dividend Revenue 42,500
Fair Value Adjustment 150,000
Unrealized holding gain or loss - equity 150,000

(b) 31-Dec-13 Equity investments 1,200,000

Cash 1,200,000
30-Jun-14 Cash 42,500
Equity investments 42,500
31-Dec-14 Cash 42,500
Equity investments 42,500
Equity investments 146,000
Investment Income 146,000

(c) fair value equity

Equity investments 1,350,000 1,261,000
Dividend Revenue 85,000 -
Investment Income - 146,000
 December 31, 2013. The
er share cash dividend on June
alue of Kulikowski’s stock was

elps cannot exercise significant

elps can exercise significant

ach of these methods at

se methods?