Homework for chapter 2 The following problems require you to indicate the financial statement effects of equity financing transactions (ignore income tax effects) Use the following format that was used in the text to present your answers Make sure that, within each major classification, you indicate the subclassification under which the account will appear On the balance sheet, use arrows to indicate whether the account will be higher() or lower() and the amount of the effect on the account To illustrate how the format is used, we include the answer to Problem 1 Journal entry option students who are interested in how the transactions would be recorded in the accounting system should also make journal entries for each situation Balance sheet Assets Liabilities Owners equity Income statement Statement of Owners Equity Effects of equity transactions Fruit and Nut Enterprises issued 65,000 shares of $1 par value common stock The shares sold for $4 per share The underwriter remitted proceeds to Fruit and Nut after deducting $11,500 in issue costs In a separate transaction, Fruit and Nut issued 2,000 shares of 6 , $100 par value preferred stock for $115 per share The issue costs were $3,000 on this separate issue Answer Common stock Sales price 65,000 shares$4 $260,000 Net proceeds $260,000 $11,500 $248,500 Par value of shares issued 65,000shares$1 $65,000 Paid in capital in exercise of par $248,500 $65,000 $183,500 Prefferrd stock Sales price 2,000 shares$115 $230,000 Net proceeds $230,000 $3,000 $227,000 Par value of shares issued 2,000 shares$100 $200,000 Paid in capital in exercise of par $227,000 $200,000 $27,000 Total proceeds $248,500 $227,000 $475,500 Total additional paid in capital in excess of par $183,500 $27,000 $210,500 FRUIT AND NUT ENTERPRISES Balance sheet Assets Liabilities Cash $475,500 No effect Owners equity Contributed capital Common stock $65,000 Preferred stock $200,000 Additional paid in capital $210,5000 Total $475,500 Income statement Statement of Owners Equity No effect Issued common stock $248,500 Issued preferrd stock $227,000 Effects of equity transactions As part of the Makepeace Properties incorporation agreement, a consultant was retained at an agreed upon fee of $80,000 to provide a marketing plan for the first year the plan benefited the first year only The consultant felt that Makepeace had an excellent opportunity for success So the consultant waived the normal $80,000 consulting fee in exchange for 1,000 shares of Makepeaces no par common stock Effects of equity transactions Honest Vegetable Co acquired a tract of undeveloped land in exchange for 9,000 shares of $1 par value common stock The lands market value was not easily determinable, but the common stock sold on the New York Stock Exchange for $21 per share on the date of the transaction Effects of equity transaction Corn from the Farm, Inc , currently has 1 million shares of $2 par value common stock outstanding that originally sold for $6 per share in a previous year Due to superior past profits and future profits potential, the shares are currently selling for $51 per share Corn from the Farm wishes to raise additional capital by issuing 10 more shares to the market In recognition of preemptive rights, Corn from the Farm issues 100,000 rights to existing shareholders Each right plus $50 can be used to purchase one new share in the upcoming seasoned offering Effects of equity transaction LotsofJobs Manufacturing was enticed by the local city council to open a plant in Drawbridge, Arkansas, in the current period The city donated to the corporation a tract of land suitable for a plant site as an enticement The land was valued at $375,000 Effects of equity transactions Cash Dividend (Common stock) The following is the owners equity section of Billboard Co at November 1,2004 Common stock($1 par value, 300,000 shares authorized,200,000 issued and outstanding) $200,000 Additional paid in capital on common stock $900,000 Retained earnings $1,600,00 On November 1, 2004, Billboard declares a $0 40 share dividend payable on January 9, 2005, to shareholders of record on December 31, 2004 6 Effects of equity transactions Property Dividend Soup Distributors declares a dividend on December 1, 2003, payable on January 7, 2004, to shareholders of record on December 20, 2003 The dividend payment is in shares of an investment in Noodle Co that Soup is holding as a short term investment As of December 1, 2003, the investment in Noodle Co had a fair market value of $65,800 The original cost of the investment was $70,000 however, the Noodle Co stock had been marked to matter and is recorded at $68,500

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Homework for chapter 2 The following problems require you to indicate the financial statement effects of equity financing transactions (ignore income tax effects). Use the

Homework for chapter 2

The following problems require you to indicate the financial statement effects of equity financing transactions (ignore income tax effects). Use the following format that was used in the text to present your answers. Make sure that, within each major classification, you indicate the subclassification under which the account will appear. On the balance sheet, use arrows to indicate whether the account will be higher() or lower() and the amount of the effect on the account. To illustrate how the format is used, we include the answer to Problem 1.

Journal entry option: students who are interested in how the transactions would be recorded in the accounting system should also make journal entries for each situation.

Balance sheet

Assets	Liabilities
	Owners equity
Income statement	Statement of Owners Equity

Effects of equity transactions. Fruit and Nut Enterprises issued 65,000 shares of $1 par value common stock. The shares sold for $4 per share. The underwriter remitted proceeds to Fruit and Nut after deducting $11,500 in issue costs. In a separate transaction, Fruit and Nut issued 2,000 shares of 6%, $100 par value preferred stock for $115 per share. The issue costs were $3,000 on this separate issue.

Answer.

Common stock

Sales price=65,000 shares$4=$260,000

Net proceeds=$260,000-$11,500=$248,500

Par value of shares issued=65,000shares$1=$65,000

Paid-in capital in exercise of par=$248,500-$65,000=$183,500

Prefferrd stock

Sales price=2,000 shares$115=$230,000

Net proceeds=$230,000-$3,000=$227,000

Par value of shares issued=2,000 shares$100=$200,000

Paid-in capital in exercise of par=$227,000-$200,000=$27,000

Total proceeds=$248,500+$227,000=$475,500

Total additional paid-in capital in excess of par=$183,500+$27,000=$210,500

FRUIT AND NUT ENTERPRISES

Balance sheet

Assets	Liabilities
Cash $475,500	No effect
	Owners equity
	Contributed capital
	Common stock $65,000
	Preferred stock $200,000
	Additional paid-in capital $210,5000
	Total $475,500
Income statement	Statement of Owners Equity

No effect Issued common stock $248,500

Issued preferrd stock $227,000

Effects of equity transactions. As part of the Makepeace Properties incorporation agreement, a consultant was retained at an agreed-upon fee of $80,000 to provide a marketing plan for the first year. the plan benefited the first year only. The consultant felt that Makepeace had an excellent opportunity for success. So the consultant waived the normal $80,000 consulting fee in exchange for 1,000 shares of Makepeaces no-par common stock.
Effects of equity transactions. Honest Vegetable Co. acquired a tract of undeveloped land in exchange for 9,000 shares of $1 par value common stock. The lands market value was not easily determinable, but the common stock sold on the New York Stock Exchange for $21 per share on the date of the transaction.
Effects of equity transaction. Corn-from-the-Farm, Inc., currently has 1 million shares of $2 par value common stock outstanding that originally sold for $6 per share in a previous year. Due to superior past profits and future profits potential, the shares are currently selling for $51 per share. Corn-from-the-Farm wishes to raise additional capital by issuing 10% more shares to the market. In recognition of preemptive rights, Corn-from-the-Farm issues 100,000 rights to existing shareholders. Each right plus $50 can be used to purchase one new share in the upcoming seasoned offering.
Effects of equity transaction. LotsofJobs Manufacturing was enticed by the local city council to open a plant in Drawbridge, Arkansas, in the current period. The city donated to the corporation a tract of land suitable for a plant site as an enticement. The land was valued at $375,000.
Effects of equity transactions-Cash Dividend (Common stock). The following is the owners equity section of Billboard Co. at November 1,2004:

Common stock($1 par value, 300,000 shares authorized,200,000 issued and outstanding)	$200,000
Additional paid-in capital on common stock	$900,000
Retained earnings	$1,600,00

On November 1, 2004, Billboard declares a $0.40/share dividend payable on January 9, 2005, to shareholders of record on December 31, 2004.

6. Effects of equity transactions-Property Dividend. Soup Distributors declares a dividend on December 1, 2003, payable on January 7, 2004, to shareholders of record on December 20, 2003. The dividend payment is in shares of an investment in Noodle Co. that Soup is holding as a short-term investment. As of December 1, 2003, the investment in Noodle Co. had a fair market value of $65,800. The original cost of the investment was $70,000; however, the Noodle Co. stock had been marked to matter and is recorded at $68,500.