Exam 15: Contributed Capital

Which of the following is not a reason for a corporation to acquire treasury stock?

The following information is provided from the Forza Corporation's accounting records. 1) Issued 2,500 shares of $1 par common stock at $23 a share. 2) Issued 7,500 shares of $1 par common stock in exchange for land valued at $65,000. 3) In order to prevent a hostile takeover the company reacquired the 7,500 shares for $20 per share. 4) The hostile takeover did not succeed, the company reissued 5,500 shares at a cost of $21 per share. 5) The remaining stocks were reissued for $22 per share and an additional 2,000 shares were issued at the same price. Required: Prepare the journal entries for the stock entries, using the cost method assumption to account for the treasury stock.

The ratio that shows how many dollars of net income were earned for every dollar invested by the owner is return on equity.

A corporation issues 50 "packages" of securities for $154 per package. Each package consists of three shares of $5 par common stock and one share of $50 par preferred stock. If the market values of $40 per share for the common stock and $100 per share for preferred stock are known, the journal entry to record the sale would assign a total value to the preferred stock of

Noncompensatory share purchase plans are utilized to increase employee ownership.

Exhibit 15-5 On January 1, 2013, Roberts Company adopts a compensatory share option plan and grants 40 executives 1,000 shares each at $30 a share. The fair value per option is $7 on the grant date. The company estimates that its annual employee turnover rate during the service period of three years will be 4%. -Refer to Exhibit 15-5. The journal entry to record compensation expense for 2013 will be (Round off any turnover calculations to three decimal places.)

State laws established the concept of legal capital which is designed to protect the corporation's creditors by restricting the distribution of shareholder's equity to shareholders.

Righty, Inc., entered into a stock subscription contract that called for the purchase by investors of 15,000 shares of $12 par common stock at a price of $30 per share. The contract required a down payment of $15 per share, with the remaining $18 per share collectible at the end of three months. Required: a.Prepare the journal entry to record the stock subscription and down payment. b.The subscribers paid the remainder at the end of three months. Prepare the journal entry(ies) to record the final payment and the issuance of the shares of stock.

For a compensatory share option plan, a formal journal entry or entries would be required for which of the following dates?

On January 1, 2014, the Jim Corporation granted 50,000 stock appreciation rights (SARs) to the company's president, Jim Darling. Jim will be entitled to receive cash or common stock or some combination of cash and common stock for the difference between the quoted market price at the date of exercise and a $20 option price per SAR. It is assumed that Jim will elect to receive cash when he exercises his SARs. The service period is three years, and he may exercise his SARs during the period January 1, 2017, through December 31, 2018. The market prices per share of Jim Corporation's common stock are as follows: On December 31, 2018, Jim Darling exercises his 5,000 SARs and elects to receive cash. Required: a.Prepare the journal entries to record each year's compensation expense related to the SARs. b.Prepare the December 31, 2018 entry to record the exercise of the 50,000 SARs.

Listed below are various classifications of corporations. Following the list is a series of descriptive statements. Required: Match the corporate classifications to the descriptive statements that best describe them.

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?

A corporation is a legal entity

Sully Sports Cars Co. entered into a subscription contract with various investors. The terms were as follows: 2,000 shares of $5 par common at $24. $10 down payment per share; two subsequent payments of $7 each. a.Record the subscription and the receipt of the down payment. b.The first subsequent $7 payment was received from all subscribers. c.When the final $7 payment was due, 90% of the final total amount due was received and stock was issued. Record this receipt and stock issuance. d.The remaining 10% of the final payment was not received. According to contract provisions, half of any previous payments should be returned to the subscriber with the remaining half forfeited by the subscriber. Record the entry related to the default.

Corporate stockholders can only lose the amount of their investment, in accordance with the concept of limited liability. State laws have established protection for a corporation's creditors with the concept of legal capital. Required: Explain how legal capital protects a corporation's creditors and discuss two different ways that legal capital can be established by a corporation.

Shares of capital stock issued to and held by stockholders as of a specific date are

Several years ago, Walther, Inc. issued 12,000 shares of $40 par preferred stock at $60. Each share of preferred was convertible into three shares of $10 par common stock. On January 10, 2014, one-half of the preferred stock was converted. Required: Indicate the credits that should be made in the entry to record this conversion.

What kind of characteristics may be specified in the contract for preferred stock?

Exhibit 15-2 Lawrence, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full. -Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and issued those shares. Subscribers defaulted on 200 shares. The entries to record receipt of final payment and issuance of 1,800 shares would include a

What conditions must be met in order for a share purchase plan to be noncompensatory?