Question
1. Fort Davis Drug Co. was formed last year by selling 650,000 shares of common stock and the balance sheet for the firm shows a
1. Fort Davis Drug Co. was formed last year by selling 650,000 shares of common stock and the balance sheet for the firm shows a common stock amount of $3,087,500. What is the par value of the stock? If paid-in capital in excess of par is $14.65 million, what was the original price of the stock? If total equity is now $18 million, how much is retained earnings?
2. The Rankin Roofing Co. was formed last year by selling 2.3 million shares of stock at a price of $18.50 with a par of $1.50. In its first year, the firm made a net profit of $4.2 million and paid dividends of $.15 per share. Construct the equity section of the balance sheet for the company at the end of the first year.
3. The Hill Co. bought a machine 2 years ago for $66,000 with an estimated life of 6 years. The company uses straight-line depreciation methods and estimated a zero salvage value on the machine. The machine was just sold for $34,000. What taxable gain or loss should be reported on the sale of the machine? (and state if it is a gain or loss) If the firm has a 30% tax rate, what are the taxes or tax savings from with this sale (and state whether it is taxes or tax savings) ?
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