Question
PROBLEM P 3-6 The following is the balance sheet of McDonald Company: McDONALD COMPANY December 31, 2012 Assets Current assets: Cash (including $10,000 restricted for
PROBLEM
P 3-6 The following is the balance sheet of McDonald Company:
McDONALD COMPANY
December 31, 2012
Assets
Current assets:
Cash (including $10,000 restricted for payment of note)$ 40,000
Marketable equity securities 20,000
Accounts receivable, less allowance for doubtful
accounts of $12,000 70,000
Inventory 60,000
Total current assets $190,000
Plant assets:
Land $ 40,000
Buildings, net 100,000
Equipment $80,000
Less: Accumulated depreciation 20,000 60,000
Patent 20,000
Organizational costs 15,000
235,000
Other assets:
Prepaid insurance 5,000
Total assets $430,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 60,000
Wages payable 10,000
Notes payable, due July 1, 2014 20,000
Bonds payable, due December 2018 100,000
Total current liabilities $190,000
Dividends payable 4,000
Deferred tax liability, long term 30,000
Stockholders' equity:
Common stock ($10 par, 10,000 shares authorized,
5,000 shares outstanding) $ 50,000
Retained earnings 156,000
Total stockholders' equity 206,000
Total liabilities and stockholders' equity $430,000
Required Indicate your criticisms of the balance sheet and briefly explain the proper treatment of any item criticized.
g. The stockholders' equity of Gaffney Company at November 30, 2012, is presented below.
Common stock, par value $5, authorized 200,000
shares,100,000 shares issued and outstanding $500,000
Paid-in capital in excess of par 100,000
Retained earnings 300,000 $900,000
On December 1, 2012, the board of directors of Gaffney Company declared a 5% stock dividend, to be distributed on December 20. The market price of the common stock was $10 on December 1 and $12 on December 20. What is the amount of the change to retained earnings as a result of the declaration and distribution of this stock dividend?
1. $0
2. $40,000
3. $50,000
4. $60,000
5. None of the above
h. Schroeder Company had 200,000 shares of common stock outstanding with a $2 par value and retained earnings of $90,000. In 2010, earnings per share were $0.50. In 2011, the company split the stock 2 for 1. Which of the following would result from the stock split?
1. Retained earnings will decrease as a result of the stock split.
2. A total of 400,000 shares of common stock will be outstanding.
3. The par value would become $4 par.
4. Retained earnings will increase as a result of the stock split.
5. None of the above.
i. Which of the following is not a category within accumulated other comprehensive income?
1. Foreign currency translation adjustments.
2. Unrealized holding gains and losses on available-for-sale marketable securities.
3. Changes to stockholders' equity resulting from additional minimum pension liability.
4. Unrealized gains and losses from derivative instruments.
5. Extraordinary item.
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