CH10WorksheetwithKey

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University of Texas, El Paso *

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2010

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Finance

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Jan 9, 2024

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docx

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1. Which of the following transactions will result an increase in Assets on a Corporation’s balance sheet? i. Issuance of stock – common and preferred ii. Purchase of treasury stock iii. Sale of treasury stock iv. Stock split A. only i B. i and ii C. i and ii and iv D. i and iii D 2. True Green Co. has 3000 shares of preferred stock outstanding, $120 par, 5%, non-cumulative. The company also has 1000 shares of treasury stock and 10,000 shares of common shares. If True Green Co. declares dividends this year, how much of the dividends must go to the preferred shareholders? A. Zero B. 18,000 C. 60,000 D. 78,000 B 3. On May 23, the board of directors at Purified Co. declares a $20,000 cash dividend. On June 2, as part of the declaration, the corporation announces the record date, which follows the declaration date by a few weeks. The stockholders on the record date will receive the dividend. Later on July 2, the company paid the dividend declared on May 23. On which date will Purified Co. record a journal entry that results an increase in its liability? A. May 23 B. June 2 C. July 2 D. None of them A 4. If a company resells its treasury stock, then the company will receive cash in exchange. This transaction usually results a gain for the company. A. True

B. False B 5. Lima Corp. began operations on January 1, 2020, and immediately issued 20 million shares of common stock at $5 per share with a par value of $0.5, receiving cash. (1) Journalize the transaction and provide explanation. Jan 1 Cash (20,000,000 x $5) 100,000,000 Common Stock (20,000,000 x $0.5) 10,000,000 Paid-in Capital (20,000,000 x $4.5) 90,000,000 To issue common stock. (2) Using the results from question (1) to prepare the stockholder’s equity section (from a to e) for Lima Corp. in its 2020 balance sheet below. Note that Lima’s entry to close net income to Retained Earnings was: Revenues 150,000,000 Expenses 100,000,000 Retained Earnings 50,000,000 Common stock, $0.5 par, 20 billion shares authorized, 20 million shares issued and outstanding $ a Paid-in Capital $ b Total paid-in capital $ c Retained earnings $ d Total stockholders’ equity $ e a = 10,000,000 b = 90,000,000 c = 100,000,000 d = 50,000,000 e = 150,000,000 6. On March 1, 2020, OmegaA repurchased 5 million shares of common stock from shareholders at $10 per share. On Jun 3, 2020, OmegaA sold treasury stock for $12 per share, receiving cash. Journalize the two transactions and provide explanatios.

Mar 1 Treasury Stock (5,000,000 x $10) 50,000,000 Cash 50,000,000 Purchased treasury stock. Jun 3 Cash 60,000,000 Treasury Stock (5,000,000 x $10) 50,000,000 Paid-in Capital from Treasury Stock Transaction (5,000,000 x $2) 10,000,000 Sold treasury stock. 7. Stock splits will increase in the number of shares of stock issued and outstanding; therefore, the company’s Shareholder’s Equity will usually increase after stock splits. A. True B. False B 8. HashTag Corp. has Sales Revenue of $8,000,000 and Expenses of $ 3,600,000. The company has issued 1,500,000 shares of common shares and holds 60,000 shares of treasury stock. It also has 4000 shares of preferred stock outstanding, $200 par, 8% non-cumulative. There has been no change in the number of common and treasury shares throughout the year. What is the EPS for HashTag Corp.? Net Income = Revenues – Expenses = $8,000,000-3,600,000 = $4,400,000 Preferred dividends = # pfd stock x par x % dividend = 40,000 x $200 x 8% = $640,000 Common shares outstanding = Issued – Treasury Stock = Common shares outstanding 1,500,000 issued – 60,000 treasury = 1,440,000 common shares outstanding Earnings Per Share = (Net Income – Preferred dividends ) / # common shares outstanding = ($4,400,000 – 640,000)/1,440,000 = 2.611 $2.611 earnings per share

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