Equity problems
PRACTICE PROBLEMS - EQUITY:
Problem 1: The equity section of ABC Company’s balance sheet as of January 1, 2014 is presented below:
Common Stock($0.5 par)$ 100,000
Additional Paid-In Capital$ 2,000,000
Treasury Stock($ 500,000)
Retained Earnings$ 1,000,000
Total Equity$ 2,600,000
Note that all paid-in capital accounts are tracked in the single “Additional Paid-In Capital” account listed on the balance sheet.
ABC Company recorded net income of $120,000 in 2014. It neither declared nor paid any dividends.
ABC Company had the following transactions in 2014:
Feb 1: Issued 25,000 shares of common stock for $15 per share. The stock has a par value of $0.50. The company incurred $10,000 in issuance costs.
April 1: Issued 10,000 shares of common stock in exchange for the right to use a competitor’s brand when marketing its products. The stock traded at $18 per share on April 1, 2014, and independent experts put the value of the brand between $100,000 and $200,000.
May 1: Issued 2,000 shares of $100 par value 8% cumulative preferred stock. The shares sold at par value.
August 1: Purchased 10,000 shares of $0.50 par value common stock from the open market. These shares were purchased at an average price of $21 per share.
September 1: Re-issued 5,000 shares of treasury stock, originally acquired on August 1st, at a price of $25 per share.
November 1: Re-issued the remaining 5,000 shares of treasury stock, originally acquired on August 1st, at a price of $19 per share.
Required 1 – Show the journal entry for each transaction.
Required 2 - Calculate the equity section of ABC Company’s balance sheet as of 12/31/2012.
Problem 2: On January 1, 2007 Brown Company issued 10 million stock options to key executives that would permit the executives to buy 10 million shares of the Company’s $1 par value common stock. Assume that there is a zero balance in the Paid In Capital – Share Repurchase account.
The exercise price was set at $15 a share. The options
Problem 1: The equity section of ABC Company’s balance sheet as of January 1, 2014 is presented below:
Common Stock($0.5 par)$ 100,000
Additional Paid-In Capital$ 2,000,000
Treasury Stock($ 500,000)
Retained Earnings$ 1,000,000
Total Equity$ 2,600,000
Note that all paid-in capital accounts are tracked in the single “Additional Paid-In Capital” account listed on the balance sheet.
ABC Company recorded net income of $120,000 in 2014. It neither declared nor paid any dividends.
ABC Company had the following transactions in 2014:
Feb 1: Issued 25,000 shares of common stock for $15 per share. The stock has a par value of $0.50. The company incurred $10,000 in issuance costs.
April 1: Issued 10,000 shares of common stock in exchange for the right to use a competitor’s brand when marketing its products. The stock traded at $18 per share on April 1, 2014, and independent experts put the value of the brand between $100,000 and $200,000.
May 1: Issued 2,000 shares of $100 par value 8% cumulative preferred stock. The shares sold at par value.
August 1: Purchased 10,000 shares of $0.50 par value common stock from the open market. These shares were purchased at an average price of $21 per share.
September 1: Re-issued 5,000 shares of treasury stock, originally acquired on August 1st, at a price of $25 per share.
November 1: Re-issued the remaining 5,000 shares of treasury stock, originally acquired on August 1st, at a price of $19 per share.
Required 1 – Show the journal entry for each transaction.
Required 2 - Calculate the equity section of ABC Company’s balance sheet as of 12/31/2012.
Problem 2: On January 1, 2007 Brown Company issued 10 million stock options to key executives that would permit the executives to buy 10 million shares of the Company’s $1 par value common stock. Assume that there is a zero balance in the Paid In Capital – Share Repurchase account.
The exercise price was set at $15 a share. The options