PART 1

Fifo Inc. raises $4 million dollars by issuing shares of common stock.The market rate of interest is 10% at the time of issue.Assuming a corporate income tax rate of 30%, 100,000 common shares issued, and an increase in net income of $1,000,000 due to the additional resources, what is the effect on earnings per share?

a.$40 increase

b.$28 increase

c.$4.20 increase

d.$7 increase

Loretta Inc. issues 2,000 shares of preferred stock in exchange for land and building that have a fair value of $50,000 and $80,000 respectively. What is included in the journal entry to record this transaction?

a.A debit to Land and Building for $130,000

b.A debit to Land for $80,000

c.A credit to Preferred Stock for $130,000

d.A credit to Preferred Stock for $2,000

Sabie Inc. has 100,000 authorized shares of common stock, 2,000 shares issued and 1,800 outstanding.It has decided to declare a 2for1 stock split when the average cost per share is $10.What is the effect of this stock split?

a.Stock outstanding increases to 3,600

b.Stock issued is unchanged

c.Stockholder's equity decreases by $20,000

d.Stockholder's equity increases by $18,000

A company is authorized to issue 500,000 shares of common stock. There are 5,000 outstanding shares. The board declares a cash dividend of $.50 per share on December 1, 2019.What is included in the journal entry to record the declaration of the dividend?

a.A debit to Cash Dividends Declared of $2,500

b.A credit to Retained Earnings of $2,500

c.A debit to Cash Dividends Declared of $250,000

d.No entry is made

A company has the following capital stock outstanding: preferred shares of $15,000, common shares of $30,000, retained earnings of $100,000. Preferred dividends in arrears amount to $5,000.There are 10,000 shares of common stock and 1,000 shares of preferred outstanding.What is the book value of one share of common stock?

a.$12.50

b.$20

c.$105

d.$125

A company has the following capital stock outstanding: preferred shares of $15,000, common shares of $30,000, retained earnings of $100,000. Preferred dividends in arrears amount to $5,000.There are 10,000 common shares and 1,000 preferred shares issued.What is the book value one share of preferred stock?

a.$12.50

b.$20

c.$105

d.$125

PART 2: Financial statement effects

Required:

For each event listed below, indicate whether the amount of each financial statement component is

• increased or decreased .
• Mark + or -
• Indicate with an 'x' if there is no change. (See the response to statement 1 below.)

Consider each event to be unrelated to the others, unless otherwise indicated.

Assets | Liabilities | Stockholders'Equity

1.Declared of cash dividend x - +

2.Paid the cash dividend in item 1

3.Split common stock 2:1

4.Declared a stock dividend

5.Redeemed preferred stock for cash

6.Paid a stock dividend

7.Recorded a restriction on retained earnings