Chapter 13: 6RQ (page 707)
What is par value?
Par value or nominal value is considered as the face value of a stock stated in the corporate charter. It is often set at a very price, for instance, $10.
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What are the two basic sources of stockholders’ equity? Describe each source.
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
e. Exposure to double taxation is evident.
Question: Journalizing a small stock dividend
Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.
Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.
Requirements
3. What is the overall effect on total stockholders’ equity?
Computing earnings per share, price/earnings ratio, and rate of return on common stockholders’ equity
Bianchi Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income \( 34,380 \) 18,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets \( 285,000 \) 280,000
Paid-In Capital:
Preferred Stock—11%, \(9 Par Value; 60,000 shares
authorized, 12,000 shares issued and outstanding
\) 108,000 \( 108,000
Common Stock—\)2 Par Value; 60,000 shares
authorized, 50,000 shares issued and outstanding
100,000 100,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 60,500 38,000
Total Stockholders’ Equity \( 282,500 \) 260,000
Requirements
2. Compute Bianchi Company’s price/earnings ratio for 2018. Assume the company’s market price per share of common stock is $9. Round to two decimals.
Question: Identifying sources of equity, stock issuance, and dividends
Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:
Preferred Stock—5%, ? Par Value; 625,000 shares
authorized, 325,000 shares issued and outstanding
Paid-In Capital:
\( 1,300,000
1,350,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 2,600,000
Total Paid-In Capital 5,250,000
Retained Earnings 11,800,000
Total Stockholders’ Equity \) 17,050,000
Common Stock—\(1 Par Value; 7,000,000 shares
authorized, 1,350,000 shares issued and outstanding
Requirements
4. No preferred dividends are in arrears. Journalize the declaration of a \)200,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.
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