Q1:

Dornbusch Associates was issued a charter on January 15 authorizing the following capital stock:

Common stock, $6 par, 100,000 shares, one vote per share. Preferred stock, 7 percent, par value $10 per share, 5,000 shares, nonvoting.

The following selected transactions were completed during the first year of operations in the order given:

1. Issued 22,000 shares of the $6 par common stock at $20 cash per share.
2. Issued 3,200 shares of preferred stock at $24 cash per share.
3. At the end of the year, the accounts showed net income of $40,000. No dividends were declared.

Required:

1. Prepare the stockholders equity section of the balance sheet at December 31.
2. Assume that you are a common stockholder of Dornbusch Associates. If the company needed additional capital, would you prefer to have it issue additional common stock or additional preferred stock?

Req. 1

Prepare the stockholders equity section of the balance sheet at December 31.

DORNBUSCH ASSOCIATES

Balance Sheet (Partial)

At December 31

Stockholder's Equity

Contributed Capital:
Total Contributed Capital
Total Stockholder's Equity

Req. 2

Assume that you are a common stockholder of Dornbusch Associates. If the company needed additional capital, would you prefer to have it issue additional common stock or additional preferred stock?

a.) Additional Common Stock

b.)Additional Preferred Stock

Q2:

The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $260,000 in the current year. It also declared and paid dividends on common stock in the amount of $1.40 per share. During the current year, Sneer had 1 million common shares authorized; 460,000 shares had been issued; and 244,000 shares were in treasury stock. The opening balance in Retained Earnings was $740,000 and Net Income for the current year was $240,000. Required:

1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock.
2. Using the information given above, prepare a statement of retained earnings for the year ended December 31.
3. Prepare a journal entry to close the dividends account.

Q3:

At December 31, the records of Kozmetsky Corporation provided the following selected and incomplete data:

Common stock (par $2; no changes during the current year). Shares authorized, 5,000,000. Shares issued, ? ; issue price $9 per share. Shares held as treasury stock, 11,900 shares, cost $7 per share. Net income for the current year, $380,900. Common Stock account, $141,000. Dividends declared and paid during the current year, $2 per share. Retained Earnings balance, beginning of year, $710,000.

Required:

Complete the following: (Round "Earnings per share" to 2 decimal places.)

1-a Shares issued
1-b. Shares outstanding
2. The balance in Additional Paid-in Capital would be
3. Earnings per share is
4. Total dividends paid on common stock during the current year is
5. Treasury stock should be reported in the stockholders' equity section of the balance sheet in the amount of
6. Assume that the board of directors voted a 2-for-1 stock split. After the stock spilt, the par value per share will be