see below 13
12. On July 15, Reagan, Inc. was incorporated and subsequently entered into a
subscription contract to sell 10,000 shares of $10 par common stock at a price of
$22/share. The contract requires a down payment of 10%, with the remaining
balance to be paid on October 1. The stock will be issued to each subscriber upon full
payment. Assume that no other transactions affected common stock during the year.
A total of 9,000 shares were paid for under the subscription agreement, and the
remaining 1,000 shares were sold to the market at $9/share on October 2.
What is the balance in the Common Stock account as of December 31?
A. $90,000
B. $99,000
C. $100,000
D. $193,000
E. $207,000
13. JFK Corporation has 10 executives to whom it grants compensatory stock options on
January 1, 2007. At that time, it grants each executive the right to purchase 1,000
shares of its $1 par value common stock at $12/share after a 4-year service period. UOG Courses-Examination
The value of each option is estimated to be $2.45 on the grant date. Based on its
average employee turnover rate each year, JFK expects that a total of 1 executive will
NOT vest in the plan.
If JFK does not change its assumptions, how much compensation expense will be
recognized during 2009?
A. $5,513
B. $16,539
C. $22,050
D. $30,000
E. $90,000
14. On January 1, 2008, Washington, Inc. issues 900 shares of $100 par convertible
preferred stock for $134/share. Each share of convertible preferred stock can be
converted into J. shares of $10 par value common stock.
If preferred shareholders convert 200 shares of preferred stock into common stock,
how much will Washington, Inc. record in the Common Stock account?
A. $0
B. $2,000
C. $6,000
D. $20,000
E. $26,800
15. 0n June 15, 2008, Jefferson Adams, Inc. had 15,000 shares of$5 par value common
stock issued and outstanding. These shares of common stock had originally been
issued for $12/share. The company had never repurchased or reissued any of the
issued an<l outstanding shares. However, during the year, the company engaged in
the following transactions:
Reacquired 2,000 shares of common stock for $41/share.
Reissued 1,000 shares of common stock for $43/share.
Assume that Jefferson Adams, Inc. uses the cost method to account for treasury
stock, and that no other transactions affected the contributed capital accounts during
the year.
At the end of the year, which of the following statements is NOT true?
A. Additional Paid in Capital – Treasury Stock will have a $2,000 balance.
B. Additional Paid in Capital – Common Stock will have a balance of $105,000.
C. Treasury Stock will have a balance of $41,000.
D. There were 15,000 shares of $5 par value common stock issued and
outstanding.
E. There is a balance of $75,000 in the Common Stock account.
16. At the beginning of the year, the Lincoln Logging Company had 10,000 shares of $1
par value common stock outstanding. During the year, it engaged in the following
transactions related to its common stock, so that at year end, it had 32,600 shares
outstanding:UOG Courses-Examination
March 30—Issued 2,300 shares of common stock
June 1 – Repurchased 3,100 shares of common stock
October 31 – Issued a 3 for 1 stock split, reducing the par value to $0.33/share
December 1 – Issued 5,000 shares of common stock
Compute the Lincoln Logging Company’s weighted average common shares
outstanding.
A. 25,858
B. 26,514
C. 27,600
D. 30,167
E. 32,600
17. The Roosevelt Car Company has determined that it will pay a total cash dividend of
$80,000. Roosevelt has 1,000 shares of 5%, $100 par, cumulative, non-participating
preferred stock with two years of dividends in arrears, currently selling for $131/share,
and 20,000 shares of no-par, no stated value common stock issued and outstanding,
currently selling for $15/share.
How much cash dividend will be paid on each share of common stock?
A. $3.02
B. $3.25
C. $3.50
D. $3.75
E. $4.00
18. The Coolidge Brewing Company has stockholder’s equity as follows:
Common Stock, $10 par $100,000
Additional Paid in Capital-Common Stock $230,000
Retained Earnings $316,450
Total Stockholder’s Equity $646,450
The company is considering issuing an 8% stock dividend. The current market price
of the company’s stock is $46/share.
If this dividend is declared and issued, which of the following statements is NOT true?
A. Contributed capital will be increased by $8,000.
B. Retained earnings will be reduced by $36,800.
C. Common stock will be increased by $8,000.
D. Additional Paid in Capital from Stock Dividends will be increased by $28,800.
E. 800 additional shares of common stock will be issued.
19. The following information pertains to the Garfield Company.
The company had net income of $150,000. The company had income from
continuing operations of $135,000 and income from extraordinary items of $15,000.
The company had 20,000 weighted average common shares outstanding during the
year. The company had 10,000 shares of 8%, $20 par, cumulative preferred stock
outstanding during the year, but no dividends were declared during the year.UOG Courses-Examination
The company MUST report:
A. Basic EPS for Net Income of $7 .50, Income from Continuing Operations of
$6.75, and Income from Extraordinary Items of $0.75
B. Basic EPS for Net Income of $6. 70, Income from Continuing Operations of $6.
75, and Income from Extraordinary Items of ($0.05)
C. Basic EPS for Net Income of $6. 70, Income from Continuing Operations of
$5.95, and Income from Extraordinary Items of $0.75
D. Basic EPS for Net Income of $7 .50, Income from Continuing Operations of
$5.95, and Income from Extraordinary Items of ($0.05)
E. Basic EPS for Net Income of $6. 70, Income from Continuing Operations of
$5.95, and Income from Extraordinary Items of ($0.05)
20. The van Buren Bureau Company has stockholder’s equity as follows:
Common Stock, $1 par $30,000
Additional Paid in Capital – Common Stock $210,000
Retained Earnings $149,837
Total Stockholder’s Equity $389,837
The company is considering issuing a 30% stock dividend. The current market price
of the company’s stock is $6/share.
If this dividend is declared and issued, which of the following statements is true?
A. Contributed capital will be increased by $54,000.
B. Retained earnings will be reduced by $54,000.
C. Contributed capital will be increased by $54,000.
D. Retained earnings will be reduced by $54,000.
E. All of the above answers are true.
Problems (2 Problems@ 40 points total): Answer all of the questions for each problem.
Show your work neatly so that you may receive partial credit for your work. In addition,
make sure that your final answer is clearly labeled, and that your answer is legible.
Problem 1 (25 points):
Carter Construction had net income of $350,000. They began the year with 25,000
common shares issued and outstanding. On June 30, they issued 10,000 additional
shares. There were no other transactions affecting common stock. The average market
price of the common stock during the year was $30/share. The market price of the
common stock at the end of the year was $34/share. The company’s marginal tax rate is
20%.
The following information pertains to securities issued by the company. Each security was
outstanding during the entire year.
1. 5,000 options to buy common stock with an exercise price of $28/share. In addition,
there is $4 of unrecognized compensation cost associated with each option.
2. 10,000 shares of 5%, $100 par, cumulative, non-convertible preferred stock with an
average market price of $105/share and an ending market price of $108/share.
3. 2,000 shares of 7%, $100 par, cumulative, convertible preferred stock with an UOG Courses-Examination
average market price of $109 and an ending market price of$107/share. Each share
of preferred stock is convertible into 5 shares of common stock.
4. 200 $1,000 bonds with a stated interest rate of 10%, convertible into 50 shares of
common stock, issued at 105. The premium is being amortized at the rate of
$500/year.
Compute Carter Construction’s Basic Earnings per Share (5 points):
Given the information that you have about the options, are they potentially dilutive? Why
or why not (3 points)?
Given the information that you have about the shares of the 5%, $100 par preferred stock,
are they potentially dilutive? Why or why not (3 points)?
Given the information you have about the shares of the 7%, $100 par preferred stock, are
they potentially dilutive? Why or why not (3 points)?
Given the information you have about the I 0% bonds, are they potentially dilutive? Why or
why not (3 points)?
Rank each potentially dilutive security, beginning with the most dilutive (2 points).
Compute diluted earnings per share (6 points).UOG Courses-Examination
Problem 2 (15 points):
On January 1, 2008, as a form of executive compensation, the Truman Company granted
share appreciation rights (SARs) to James Forrestal. These rights entitle Forrestal to
receive cash equal to the excess of the quoted market price over a $30 option price for
10,000 shares of the company’s common stock on the exercise date. The service period is
four years. Forrestal exercises his rights on December 31, 2011. The fair value per SAR
was:
12/31/2008: $7.25
12/31/2019: $3.75
12/31/2010: $5.50
12/31/2011: $4.60
The market price of the common stock was $34.60 on December 31, 2011.
Prepare a table that calculates and summarizes the expense AND ending liability
associated with the SARs for 2008 and 2009 (6 points).
Prepare the journal entry to record compensation expense for 2008 (3 points).
Prepare the entry to record compensation expense for 2009 (3 points).
What would the Truman Company’s balance in the SAR Payable account be as of
December 31, 2010 (3 points)?
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