accounting week 6 Essay

?E11-15 Before Action After Stock Dividend After Stock Split Stockholder’s Equity Paid-In Capital Common Stock 600,000 630,000 600,000 In excess of Par Value 0 12,000 0 Total Paid-In Capital 600,000 642,000 600,000 Retained Earnings 900,000 858,000 900,000 Total Stockholder’s Equity 1,500,000 1,500,000 1,500,000 Outstanding Shares 60,000 63,000 120,000 Book Value Per Share 25. 00 23. 81 12. 50 E12-1 1. One reason a company may purchase investments in debt or stock securities is they may have extra cash that they don’t need in the immediate future.

Another reason may be to generate earnings from investment income. A third reason may be for strategic reasons, such as gaining some influence over customers or suppliers. 2. A company might have excess cash that it doesn’t need for operations due to seasonal fluctuations, or it could result from a better than normal economic cycle. 3. The typical investment when investing cash for short periods of time is low-risk, highly liquid securities that are usually short-term government securities. 4.

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Typical investments when investing cash to generate earnings are debt securities from banks and other financial institutions, and stock securities such as mutual funds and pension funds. 5. A company may invest in securities that provide no current cash flow for strategic purposes, such as to gain influence with customers or suppliers, or to simply to establish a presence in that company or industry. They may also purchase controlling stock in another company to be able to enter that industry without having to worry about incurring undue costs. 6.

The typical stock investment when investing cash for strategic reasons is stock of companies in related industries or in companies in unrelated industries that they wish to enter. E12-2 Jan 1 Debt Investment 50,900 Cash 50,900 July 1 Cash 2,000 Interest Revenue 2,000 July 1 Cash 33,500 Debt Investment 30,540 Gain on Sale of Debt Investment 2,960 Dec 31 Interest Receivable 2,000 Interest Receivable 2,000 P11-6A Land 296,000 Preferred Stock 240,000 Paid-In Capital in Excess of Par Value-Preferred 56,000 Cash 7,700,000 Common Stock 2,000,000 Paid-In Capital in Excess of Stated Value-Common 5,700,000

Treasury Stock 33,000 Cash 33,000 Cash 14,000 Common Treasury Stock 11,000 Paid-In Capital from Treasury Stock 3,000 Stockholders’ Equity Section Stockholders’ Equity Paid-in Capital 240,000 Common Stock 2,000,000 Total Capital Stock 2,240,000 Additional Paid-In Capital In Excess of Par Value – Preferred 56,000 In Excess of Stated Value – Common 5,700,000 Treasury Stock – Common 3,000 Total Additional Paid-In Capitol 5,759,000 Total Paid-In Capital 7,999,000 Retained Earnings 560,000 Total Paid-In Capital and Retained Earnings 8,559,000 Less: Treasury Stock (22,000) Total Stockholders’ Equity 8,537,000


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