Carson Corporation has the following capital stock outstanding at December 31, 2015:

9% Preferred stock, $100 par value, cumulative

15,000 shares issued and outstanding
Common stock, no par, $10 stated value, 500,000 shares authorized,
350,000 shares issued and outstanding
The preferred stock was issued at $110 per share. The common stock was issued at an average per share price of $16.
Instructions Prepare the paid-in capital section of the balance sheet at December 31, 2015.

Carson Corporation
Balance Sheet (partial)
As of December 31, 2015

Stockholders' equity
Paid-in capital
Capital stock
9% Preferred stock, $100 par value, cumulative
15,000 shares issued and outstanding                         $1,500,000

Common stock, no par, $10 stated value,                       

shares authorized, 350,000 shares issued and

outstanding                                                                    3,500,000
Total capital stock                                                                               5,000,000

Additional paid-in capital

In excess of par value—preferred stock                           $ 150,000*
In excess of stated value—common stock                        2,100,000**
Total additional paid-in capital                                                            2,250,000
Total paid-in capital                                                                           $7,250,000
*15,000 shares × $10 = $150,000.
**350,000 shares × $6 = $2,100,000.
$1,500,000

3,500,000
MassBay Community College CHAPTER 11 QUIZ Prof. Parsons
Financial Accounting II AC102 ellparsons2@gmail.com
Multiple Choice on BB 20 points

NAME____________________________________________________ GRADE_______________

#1 COMMON STOCK 2 journal entries

20 points
The following transactions pertain to Linton Corp.:

3-Jan The company issued common stock for cash.

Number of shares issued 150,000
Par value per share $ 5
Market price per share $ 15

10-Feb The company issued common stock in exchange for land that is advertised for sale
at a price of $200,000. The stock is actively traded.
Number of shares issued 10,000
Par value per share $ 5
Market price per share $ 15

Instructions: Prepare the journal entries for these two transactions.

Date Account Title Debit Credit

3-Jan Cash 2,250,000
Common Stock 750,000
Paid in capital in excess of par value - common 1,500,000

10-Feb Land 150,000

Common Stock 50,000
Paid in capital in excess of par value - common 100,000

For paid in capital, it has to be specified whether it was in

excess of par value or in excess of stated value
#2 PREFERRED STOCK                               2 journal entries
10 points
Tyler Corp. is authorized to issue 100,000 shares of its preferred stock.
During the year, the company had the following transactions related to preferred stock:

10-Feb Issued preferred stock for cash

Number of shares issued 30,000
Par value per share $ 30
Market price per share $ 50

10-Mar Issued preferred stock for equipment having an asking price of $ 700,000
Number of shares issued 10,000 shares
Par value per share $ 30
Market price per share $ 50

Instructions: Prepare the journal entries for these two transactions.

Date Account Title Debit Credit

10-Feb Cash 1,500,000
Preferred Stock 900,000
Paid in capital in excess of par value-Preferred 600,000

10-Mar Equipment 500,000

Preferred Stock 300,000
Paid in capital in excess of par value-Preferred 200,000

Paid in capital has to specify whether it is "in excess of par value" or

"in excess of stated value"
#3 TREASURY STOCK 4 journal entries
15 points
Edmond Company had the following transactions during 2020.
1-Jan Issued common stock for cash.
Number of shares issued 30,000
Par value per share $ 5
Market price per share $ 12

1-Mar The company purchased shares of its common stock for the treasury.
Number of shares purchased 4,000
Market price per share $ 10

1-Jun The company sells some shares of its Treasury Stock

Number of shares sold 1,000
$ 12

1-Sep The company sells some shares of its Treasury Stock

Number of shares sold 2,000
Market price per share $ 8

INSTRUCTIONS: Journalize these transactions.

Date Account Title Debit Credit
1-Jan Cash 360,000
Common Stock 150,000
Paid in capital in excess of par value - common 210,000

1-Mar Treasury Stock 40,000

Cash 40,000

1-Jun Cash 12,000

Treasury Stock 10,000
Paid in capital - Treasury Stock 2,000

1-Sep Cash 16,000

Paid in capital - Treasury Stock 2,000
Retained Earnings 2,000
Treasury Stock 20,000
#4 CASH DIVIDENDS 2 journal entries
10 points
1-Dec The Board of Directors of India Star Company declared a cash dividend of $ .50 per share.
Dividend is payable to shareholders on December 15
Date of record is December 7
Number of $1 par common shares outstanding 25,500

INSTRUCTIONS: Prepare the journal entries to declare the dividend and then pay it.

Date Account Title Debit Credit

1-Dec Cash Dividends 12,750

Dividends payable 12,750

15-Dec Dividends payable 12,750

Cash 12,750

#5 STOCK DIVIDENDS 2 journal entries

10 points
10-Oct The Board of Directors of Pitcher Corp. declared a 10% stock dividend.
Par value per share of common stock $ 1.00
Market price per share of common stock $ 15.00
Number of shares issued and outstanding at October 10 10,000
The stock dividend will be distributed on October 31.

INSTRUCTIONS: Prepare the journal entries for the declaration of the stock dividend and
the distribution of the stock dividend.

1 Is the stock dividend small or large? 10% = SMALL

2 How many additional shares will be issued?
10,000 10% = 1,000
3 Value of the stock dividend 1,000 $ 15 = 15,000
4 Allocate to commons stock 1,000 $ 1 1,000
Allocate to Paid in capital in exess of par 14,000

Date Account Title Debit Credit

10-Oct Stock Dividends 15,000
Common Stock Dividend Distributable 1,000
Paid in capital in excess of par - common 14,000
 31-Oct Common Stock Dividend Distributable 1,000
Common Stock 1,000

#6 ALLOCATION OF DIVIDENDS BETWEEN PREFERRED AND

COMMON STOCKHOLDERS 5 points

On October 1, 2020 Devons Compnay declared a $2 per share cash dividend on common
stock.
Number of shares of $1 par common stock issued and outstanding 25,000
Number of shares of $100 par 3% cumulative preferred stock outstanding 3,000
The company did not pay dividends in 2018 or 2019

What amount of dividends must the company pay the preferred shareholders in 2020 if
they wish to pay the common stockholders a dividend?

Annual preferred dividend 300,000

3%
9,000 x 3 27,000

#8 STOCKHOLDERS' EQUITY SECTION OF THE BALANCE SHEET 10 points

Carson Corporation has the following capital stock outstanding at December 31, 2020:

9% Preferred stock, $100 par value, cumulative

12,000 shares issued and outstanding $ 1,200,000

Common stock, no par, $10 stated value, 400,000 shares authorized,

300,000 shares issued and outstanding $ 3,000,000

The preferred stock was issued at $ 110 per share.

The common stock was issued at $ 16 per share.

Instructions Prepare the paid-in capital section of the balance sheet at December 31, 2020.

Compute stock and paid in capital

Preferred:
Shares issued 12,000
Par value per share 100
Market price when issued 110

Cash 1,320,000
 Preferred Stock 1,200,000
Paid in capital in excess of par value-Preferred 120,000

Common:
shares issued 300,000
Stated value per share 10
Market price when issued 16

Cash 4,800,000
Common Stock 3,000,000
Paid in capital in excess of par value-Common 1,800,000

Carson Corporation
Balance Sheet (partial)
As of December 31, 2020

Stockholders' equity
Capital stock
9% Preferred stock, $100 par value, cumulative
15,000 shares issued and outstanding                         $ 1,200,000

Common stock, no par, $10 stated value,  500,000 shares                    

authorized, 350,000 shares issued and outstanding 3,000,000
Total Capital Stock 4,200,000

Additional paid in capital

In excess of par value - preferred stock $ 120,000
In excess of stated value - common stock 1,800,000
Total additional paid in capital 1,920,000
Total paid in capital $ 6,120,000

THE END…………….of the quiz

 3-Jan Cash received is the number of shares issued x market value per share
150,000 $ 15 $ 2,250,000

Common stock is the number of shares issued x par (or stated) value per share
150,000 $ 5 $ 750,000

Paid in capital in excess of par (or stated) value = cash received - amount attributed to common stock
$ 2,250,000 $ (750,000) $ 1,500,000

10-Feb Equipment can never be valued at the "advertised price", "asking price" or "list price".
The market value of actively traded stock is an acceptable measure of value so we use that
to value the equipment.
Number of shares issued x Market value per share = Value of equipment
10,000 $ 15 150,000

Common stock is the number of shares issued x par (or stated) value per share
10,000 $ 5 $ 50,000

Paid in capital in excess of par (or stated) value = cash received - amount attributed to common stock
150,000 $ (50,000) $ 100,000
Cash 30,000 $ 50 $ 1,500,000
Preferred stock 30,000 $ 30 $ 900,000
Additional Paid in capital…. 30,000 $ 20 $ 600,000

Equipment 10,000 $ 50 $ 500,000

Preferred stock 10,000 $ 30 $ 300,000
Additional Paid in capital…. 10,000 $ 20 $ 200,000

Cannot use the advertised price to value assets

The company could advertise it at any ridiculous price!
 This first journal entry is just a regular "issue the stock" journal entry.
The company has to issue stock before it can buy it back as Treasury Stock.

These next 3 journal entries involve treasury stock.

For doing the journal entries, keep in mind that there are no gains or losses on Treasury Stock.
This is because Treasury Stock is not an asset. It’s a stockholders' equity account.

The account Paid in Capital - Treasury Stock cannot go below zero.

1-Mar 4,000 shares bought back x $10 per share market value = 40,000

1-Jun Cash received of $12,000 = number of shares sold 1,000 x market value per share $12
Treasury stock comes on and off the books at the orginal purchase price of $10
1,000 shares sold x original purchase price per share $10 = 10,000
The balance is credited to the paid in capital -treasury stock account.

1-Sep Cash received of $16,000 = number of shares sold 2,000 x market value per share $8
Treasury stock comes on and off the books at the orginal purchase price of $10.
2,000 shares sold x original purchase price per share $10 = 20,000
Paid in capital-treasury stock can only be debited for 2,000 since that is all that account has in it.
The remaining 2,000 gets debited to retained earnings.
Debit is to Cash dividends. That account gets closed to the retained earnings account.

Number of shares outstanding 25,500 x .50 per share cash dividend = 12,750

Debit is to Stock dividends. That account gets closed to the retained earnings account.

To get the amount of the stock dividend, you first have to figure out the number of shares
that will be issued for the stock dividend.
Number of shares outstanding 10,000 x .10 stock dividend = 1,000 more shares to be issued.

The value of the stock dividend is the additional shares issued x the market price per share
1,000 $ 15 15,000

The amount of the CSDD will be the number of shares issued x par (or stated) value per share
1,000 $ 1 $ 1,000

Paid in capital in excess of par 15,000 $ (1,000) 14,000

In this entry, the stock is distributed.
Notcie that there is no cash involved in a stock dividend!

If a company has both common and preferred stock, the preferred stockholders are entitled
to get their dividends before the common stockholders receive their dividend in a given year.

If the preferred stock is cumulative, then any dividends in arrears (past dividends not paid)
must be paid before the common stockholders get their diviends.

3,000 shares of preferred stock x $100 par value = $300,000 preferred stock

300,000 shares x .03 dividend = 9,000 per year dividend on the preferred stock

Preferred stockholders are entitled to receive dividends in arrears for 2018 amd 2019 plus the
current dividend for 2020. 3 years x 9,000 annual dividend = 27,000 owed to preferred stockholders.

For this one, you need to have the outline of the stockholders' equity section in your head.

The stock is reported first.

Preferred stock comes first, then common stock.
The amounts for preferred and common stock are given in this problem.
Preferred stock $100 par x 12,000 shares outstanding = 1,200,000
Common stock $10 par x 300,000 shares outstanding = 3,000,000

Additional paid in capital has to be computed

Preferred was issued at $110 per share
12,000 shares x $110 per share = 1,320,000 cash received from issuing preferred stock

Cash proceeds of 1,320,000 - amount attributed to preferred stock 1,200,000 = 120,000

additional paid in capital on preferred stock.

Common stock was issued at $16 per share.

300,000 shares issued x $16 = 4,800,000 cash proceeds from common stock.

Cash proceeds of 4,800,000 - amount attributed to common stock 3,000,000 = 1,800,000

additional paid in capital on common stock.
Capital stock reported separately from additional paid in capital.

Under capital stock, preferred stock is reported first, then common stock.
You have to tell the whole story about each class of stock: how many shares were
authorized, how many issued and how many outstanding.
For preferred stock report the dividend rate, whether its cumulative and any other info needed.

Additional paid in capital

Preferred is reported before common
Must specify whether it is in excess of par or in excess of stated value
2250000