14-15 Quizzes

Question 1

The stockholders’ equity section of Gamma Corporation’s balance sheet as of December 31, 2025 is as follows:

• Preferred stock, 5%, $100 par value; 500,000 shares authorized, 15,000 shares issued: 1,500,000
• Paid-in capital in excess of par - Preferred: 75,000
• Common stock, $5 par value; 2,000,000 shares authorized; 600,000 shares issued and outstanding: 3,000,000
• Paid-in capital in excess of par - Common: 3,000,000
• Retained earnings: 4,500,000
  — Total: 9,925,000

Record the following events that occurred during 2026:

a) Issued 15,000 shares of common stock in exchange for equipment. The equipment has a list price of $150,000. The market price of the stock on the date of the exchange was $9.75 per share.

b) Issued for a lump-sum amount of $800,000: 25,000 shares of common stock with a current market value of $11.25 and 5,000 shares of preferred stock with a current market value $112 per share.

Answer 1

a)
D - Equipment (15,000 x 9.75): 146,250
C - Common Stock (15,000 x 5): 75,000
C - Paid-in Capital in Excess of Par - Common: 71,250

b)
Common: 25,000 x 5 = 125,000
Preferred: 100 x 5,000 = 500,000

Common: 25,000 x 11.25 = 281,250
Preferred: 5,000 x 112 = 560,000
281,250 + 560,000 = 841,250

Common: (281,250 / 841,250) x 800,000 = 267,459
Preferred: (560,000 / 841,250) x 800,000 = 532,541
267,459 + 532,451 = 800,000
—
D - Cash: 800,000
C - Common Stock: 125,000
C - Paid-in Capital Excess of Par - Common: 142,459
C - Preferred Stock: 500,000
C - Paid-in Capital Excess of Par - Preferred: 32,541

Question 2

Skinner Company’s balance sheet shows:
- Common stock, $10 par, 300,000 shares: 3,000,000
- Paid-in capital in excess of par-Common: 1,050,000
- Retained earnings: 750,000

Record the following transactions:
a) Purchased 10,000 shares of its common stock at $31 a share
b) Sold 6,000 treasury shares at $33 a share
c) Sold 4,000 shares of treasury stock at $27 a share

Answer 2

a)
D - Treasury Stock (10,000 x 31): 310,000
C - Cash: 310,000

b)
D - Cash (6,000 x 33): 198,000
C - Treasury Stock (6,000 x 31): 186,000
C - Paid-in Capital from Sale of Treasury Stock: 12,000

c)
(31 - 27) x 4,000 = 16,000
—
D - Cash (4,000 x 27): 108,000
D - Paid-in Capital from Sale of Treasury Stock: 12,000
D - Retained Earnings: 4,000
C - Treasury Stock (4,000 x 31): 124,000

Question 3

The stockholders’ equity section of Landry Corporation’s balance sheet as of December 31, 2025 is as follows:

• Common stock, $5 par value; authorized, 2,000,000 shares; issued, 600,000 shares: 3,000,000
• Paid-in capital in excess of par: 850,000
• Retained earnings: 4,500,000
  — Total: 8,350,000

The following events occurred during 2026:

• 1/5: 45,000 shares of common stock were sold for $8 per share
• 1/16: Declared a cash dividend of 20 cents per share, payable February 15 to stockholders of
  record on February 5
• 2/20: 60,000 shares of authorized and unissued common stock were sold for $12 per share
• 3/1: A 30% stock dividend was declared and issued. Fair value per share is currently $15
• 4/1: A two-for-one split was carried out. The par value of the stock was to be reduced to $2.50 per share. Fair value on March 31 was $18 per share
• 7/1: A 15% stock dividend was declared and issued. Fair value is currently $10 per share
• 8/1: A cash dividend of 20 cents per share was declared, payable September 1 to stockholders of record on August 21

1. Record the journal entries above.
2. Answer the following questions:
   2a. What is the number of common shares outstanding on December 31, 2026?
   2b. If Net Income is $2,500,000, what is the balance in Retained Earnings on December 31, 2026?

Answer 3

1/5:
D - Cash (45,000 x 8): 360,000
C - Common Stock (45,000 x 5): 225,000
C - Paid-in Capital: 135,000

1/16:
600,000 + 45,000 = 645,000
645,000 x 0.200 = 129,000
—
D - Retained Earnings: 129,000
C - Dividends Payable: 129,000

2/5:
No entry - Date of Record

2/15:
D - Dividends Payable: 129,000
C - Cash: 129,000

2/20:
D - Cash (60,000 x 12): 720,000
C - Common Stock (60,000 x 5): 300,000
C - Paid-in Capital: 420,000

3/1:
645,000 + 60,000 = 705,000
Large dividend: 30% x 705,000 = 211,500
—
D - Retained Earnings: 1,057,500
C - Common Stock (211,500 x 5): 1,057,500

4/1:
No entry

7/1:
705,000 + 211,500 = 916,000 x 2 = 1,833,000
Small dividend: 15% x 1,833,000 = 274,950
—
D - Retained Earnings (274,950 x 10): 2,749,500
C - Common Stock (274,950 x 2.50): 687,375
C - Paid-in Capital: 2,062,125

8/1:
1,833,000 + 274,950 = 2,107,950 x 0.20 = 421,590
—
D - Retained Earnings: 421,590
C - Dividend Payable: 421,590

8/21:
No entry - Date of Record

9/1:
D - Dividends Payable: 421,590
C - Cash: 421,590

Number of Shares: 600,000
1/5: 45,000 (+ 600,000) = 645,000
2/20: 60,000 (+ 645,000) = 705,000
3/1: 211,500 (+ 705,000) = 916,500
4/1: 916,500 (x 2) = 1,833,000
7/1: 274,950 (+ 1,833,000) =
2,107,950

Retained Earnings:
4,500,000 - (129,000) - (1,057,500) - (2,749,500) - (421,590) + 2,500,000 =
2,642,410

Question 4

On January 1, 2025, Hamel Corporation had 300,000 shares of $1 par common stock issued and outstanding. The following occurred during 2025:

• 2/1: Issued 25,000 new shares of common stock at $9 per share
• 4/1: Declared and distributed a 50% stock dividend
• 6/1: Purchased 2,000 of its own outstanding shares as treasury stock for $10 per share
• 7/1: Reissued 400 of the treasury shares at $12
• 8/1: Reissued 600 of the treasury shares at $9
• 11/1: Declared and issued a 4-for-1 stock split

Compute the weighted average number of shares to be used in computing earnings per share for 2025.

Answer 4

Question 5

Information for Philips Corporation for 2026:

• Net Income of $850,000
• Common shares outstanding all year of $412,500
• Philips has 150,000 options to buy common stock at $50 a share outstanding. The market price of the common stock averaged $75 during 2026
• During all of 2026, there were 5,000 shares of 10%, $100 par, cumulative, convertible preferred stock outstanding. Each share is convertible into 8 shares of common stock. No dividends had been declared or paid in 2026
• Philips issued $5,000,000 of 6%, 15-year convertible bonds at face value on January 1, 2026. Interest is paid semi-annually on June 30 and December 31. Each $1,000 bond is convertible into 24 shares of common stock
• Philips issued $1,000,000 of 6%, 10-year, convertible bond at 97 on January 1, 2025. Interest is paid annually on December 31. Philips uses straight-line amortization of bond discount or premium. Each $1,000 bond is convertible into 45 shares of common stock
• Tax rate is 20%

Compute basic and diluted earnings per share for 2026.

Answer 5

Preferred dividend: 5,000 x (0.10 x 100) = 50,000
Basic EPS: (850,000 - 50,000) / 412,500 = 1.94

1. Options
   - Proceeds = 150,000 x 50 = 7,500,000
   - Shares from exercise: 150,000
   - Treasury shares: (7,500,000 / 75) = 100,000
   - Net shares: 150,000 - 100,000 = 50,000
   — 0 / 50,000 = 0
2. Preferred stock
   - Shares issued if converted: 5,000
   - 5,000 x 8 = 40,000
   — 50,000 / 40,000 = 1.25
3. Bond #1
   - Interest expense net of tax: (5,000,000 x 6%) x (1 - 0.20) = 240,000
   - Shares issued if converted: (5,000,000 / 1,000) x 24 = 120,000
   — 240,000 / 120,000 = 2.0 (Anti-dilutive)
4. Bond #2
   - Discount: 1,000,000 x 3% = 30,000
   30,000 / 10 = 3,000 amortization per year
   - Interest expense net of tax: 1,000,000 x 6% = 60,000
   60,000 + 3,000 = 63,000
   63,000 x (1 - 0.20) = 50,400
   - Shares if converted: (1,000,000 / 1,000) x 45 = 45,000
   — 50,400 / 45,000 = 1.12

Add each dilutive security from smallest to largest:
- Options:
850,000 - 50,000 + 0 = 800,000
412,500 + 50,000 = 462,500
800,000 / 462,500 = 1.73

• Bond #2:
  800,000 + 50,400 = 850,400
  462,500 + 45,000 = 507,500
  850,400 / 507,500 = 1.68
• Preferred stock:
  850,400 + 50,000 = 900,400
  507,500 + 40,000 = 547,500
  900,400 / 547,500 = 1.64
• Bond #1 is anti-dilutive.