Stockholders Equity Paper 1

1

East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance, the stock was trading on a public exchange at $140 per share. By what amount should the additional paid-in capital account increase as a result of this transaction?






2

On July 1, year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock?






3

Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In year 3, Beck purchased 75,000 shares of its common stock and held it in Treasury. At December 31, year 3, how many shares of Beck’s common stock were outstanding?






4

A corporation was organized in January year 1 with authorized capital of $10 par value common stock. On February 1, year 1, shares were issued at par for cash. On March 1, year 1, the corporation’s attorney accepted 5,000 shares of the common stock in settlement for legal services with a fair value of $60,000. Additional paid-in capital would increase on
February 1, year 1
March 1, year 1






5

During year 1, Brad Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share. One share of preferred stock can be converted into three shares of Brad’s $25 par common stock at the option of the preferred shareholder. On December 31, year 3, when the market value of the common stock was $40 per share, all of the preferred stock was converted. What amount should Brad credit to Common Stock and to Additional Paid-in Capital—Common Stock as a result of the conversion?
Common stock
Additional paid-in capital






6

Quoit, Inc. issued preferred stock with detachable common stock warrants. The issue price exceeded the sum of the warrants’ fair value and the preferred stock’s par value. The preferred stock’s fair value was not determinable. What amount should be assigned to the warrants outstanding?






7

Blue Co. issued preferred stock with detachable common stock warrants at a price that exceeded both the par value and the market value of the preferred stock. At the time the warrants are exercised, Blue’s total stockholders’ equity is increased by the
Cash received upon exercise of the warrants
Carrying amount of warrants






8

When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as






9

On December 1, year 1, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 20% of the subscription price of each share was collected as a down payment on December 1, year 1, with the remaining 80% of the subscription price of each share due in year 2. Collectibility was reasonably assured. At December 31, year 1, the stockholders’ equity section of the balance sheet would report additional paid-in capital for the excess of the subscription price over the par value of the shares of common stock subscribed and






10

Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, year 1, Cyan’s retained earnings were $300,000. In March year 2, Cyan reacquired 5,000 shares of its common stock at $20 per share. In June year 2, Cyan sold 1,000 of these shares to its corporate officers for $25 per share. Cyan uses the cost method to record treasury stock. Net income for the year ended December 31, year 2, was $60,000. At December 31, year 2, what amount should Cyan report as retained earnings?






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