Question 1 [5 pts]

Using the template below, provide accounting entries showing the effects on the firms balance sheet that the transactions described in (a) and (b) would have. Clearly indicate the dollar amounts and whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), Additional paid-in capital (APIC henceforth): $25,000 (+), Retained earnings(RE henceforth): $15,000 (-), etc.

On Feb. 1, the firm declares a cash dividend of $0.40 per share, to be distributed on May 1.Assume the firm has 200,000 shares outstanding in total. On May 1, the dividends are paid as announced.(Lecture notes, pp.1012)

Answer:

Feb. 1, Dividend declaration.
Assets	Liabilities & Equity

May 1, Dividend payment.
Assets	Liabilities & Equity

On Nov. 1, thefirm raises capital through equity issues. The firm has issued50,000 shares of $1 par value common stock for $15.00 per share. (Lecture notes, pp.78)

Answer:

Nov. 1, Equity issue.
Assets	Liabilities & Equity

Question 2 [5 pts]

Consider afirm that has 30,000common shares outstanding, with a par value of $1. The stock is trading at $71 per share. Answer questions (a) and (b) below. (Lecture notes, pp.1013)

If the firm distributes a 20% stock dividend, what effect will this transaction have on the firms balance sheet? Using the template below, provide the relevant accounting entries showing the dollar amountsand whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), APIC: $25,000 (+), RE: $15,000 (-), etc.

Answer:

Feb. 1, Dividend declaration.
Assets	Liabilities & Equity

Suppose that instead of the stock dividend in part (a), the firm has declared a 3-for-1 stock split. Determinethe number of shares after this split and whetherthe split has effect on the firms balance sheet.

Answer:

Question 3 [5 pts]

CloudWorks, Inc. has an employee stock option plan (ESOP henceforth). In 2031, the firms executive officers were granted 10,000 optionswith an exercise price of $40 and a vesting period of 3 years. The estimate of the fair value of the granted options is $6per unit of options. The firms common stock has a par value of $1, and its current market price is $38 per share.Answer questions (a) and (b) below. (Lecture notes, pp.1417)

Using the template below, provide the relevant accounting entries showing the effect of the option grant on the balance sheet at the end of 2031. Clearly indicate the dollar amountsand whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), APIC: $25,000 (+), RE: $15,000 (-), etc.

Answer:

FYE 2031,ESOP compensation.
Assets	Liabilities & Equity

Suppose that in 2035, one of the executives exercises 200 options when the market price of the stock is $55, higher than the exercise price $40. What will be the effect of the option exercise on the balance sheet? Using the template below, provide relevant accounting entries showingthe dollar amountsand whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), APIC: $25,000 (+), RE: $15,000 (-), etc.

Answer:

FYE 2035,ESO exercised.
Assets	Liabilities & Equity