Answer: $0.25
Explanation:
Fron the question, we are informed that Tri-coat Paints has a current market value of $50 per share with earnings of $5.97. We are further told that the required return is 12%.
The present value of its growth opportunities (PVGO) will be:
= $50 - ($5.97/12%)
= $50 - ($5.97/0.12)
= $50 - $49.75
= $0.25
Therefore, the present value of its growth opportunities (PVGO) if the required return is 12% is $0.25.
SuspendHers Inc., a maker of fashionable belts and accessories for women, plans to expand in the EU marketplace. To do so, the EU requires the company to
Answer:
Certify its product under ISO 9000.
Explanation:
ISO 9000 refers to the International Organization for Standardization that focused on the management of the quality related to the product and services by complying with the documents required so that the quality could be maintained. It is to be applied with any industry whether it is small, middle or large
Therefore while making fashionable belts and accessories for women and planned to diversify it that required the ISO 9,000 and the same is to be considered
Gugenheim, Inc., has a bond outstanding with a coupon rate of 5.8 percent and annual payments. The yield to maturity is 7 percent and the bond matures in 14 years. What is the market price if the bond has a par value of $2,000?
A. $1,790.11
B. $1,825.91
C. $1,788.00
D. $1,792.86
E. $1,795.22
Answer:
The market price if the bond has a par value of $2,000 is A. $1,790.11
Explanation:
The Market Price, PV of the Bond can be determined as follows :
PMT = $2,000 × 5.80% = - $116
P/yr = 1
YTM = 7 %
n = 14
Fv = - $2,000
Pv = ?
Using a financial calculator, the Market Price, PV is $1,790.1088 or $1,790.11.
Suppose the current term structure of interest rates, assuming annual compounding, is as follows: s_1s 1 s_2s 2 s_3s 3 s_4s 4 s_5s 5 s_6s 6 7.0% 7.3% 7.7% 8.1% 8.4% 8.8% What is the discount rate d(0,4)d(0,4)? (Recall that interest rates are always quoted on an annual basis unless stated otherwise.)
Answer: The answer is 7.53%
Explanation:
To calculate for the discount rate of d(0,4)d(0,4)
The discount factor is : d=1/1+i
Provided the interest rates are compounded annually the discount factor will give the present value of the bond when provided with the interest rate and maturity value.
Going with the above, the present value of a bond with a maturity value of 1 will be;
Present value=1 /(1+i1) (1+i) (1+i3) (1+i4)
Present value=1 / (1.07) (1.073) (1.077) (1.081)
Present value=0.748
The present value of a bond with a maturity value of 1 will hence be 0.748.
Therefore, to calculate the discounting factor for the 4 years:
1 (1+d (0,4))‐⁴ =0.748
(1+d(0,4))=0.748‐¹/⁴
1+d (0,4) =1.0753
d (0,4)=0.0753
Finally, the discount rate will be 7.53%
Preferred stock is a form of debt financing because the dividend must be paid before dividends can be paid to the equity owners.
Answer:
False
Explanation:
Preference stock is a type of ownership of equity whereas the bond is the form of debt. The preference stock is the stock in which the dividend is fixed and to be paid before paying the common shareholders.
it includes the features like no voting rights, fixed dividend
Therefore the given statement is false
Total Variable Overhead Variance Mulliner Company showed the following information for the year:
Standard variable overhead rate (SVOR) per direct labor hour $3.50
Standard hours (SH) allowed per unit 3
Actual production in units 20,000
Actual variable overhead costs $220,500
Actual direct labor hours 61,200
Required:
1. Calculate the standard direct labor hours for actual production.
2. Calculate the applied variable overhead.
3. Calculate the total variable overhead variance.
Answer:
1. The standard direct labor hours for actual production
Standard hours per unit: 3 hours
Actual output: 20,000
Standard labour hours for actual production = 20,000 * 3
=60,000 hours
2. Applied variable Overhead
Standard hours allowed per unit = 3
Overhead rate per hour = $3.5
Standard Overhead rate per unit = Standard hours allowed per unit * OH rate per hour =3 hours * $3.5
=10.5
Actual output = 20000
Variable OH applied = Actual output * Standard Overhead rate per unit
= 20,000 * $10.5
= $210,000
3. Total Variable Overhead variance
Actual Oh incurred $220,500
Std variable Overhead to be allowed $210,000
Total Variable OH variance $10,500 (Unfavourable)
Gift property (disregarding any adjustment for gift tax paid by the donor): a.Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a gain. b.Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a loss, and the fair market value on the date of gift was less than the donor's adjusted basis. c.Has a zero basis to the donee if the fair market value on the date of gift is less than the donor's adjusted basis. d.Has no basis to the donee because he or she did not pay anything for the property.
Answer: Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a gain.
Explanation:
For a gifted property, it should be noted that the tax basis for a donee that is, the person who gets the gift will be identical to that of the donor, this is, the person that donates the gift in cases whereby the property is gotten as a gift.
Therefore, a gift property disregarding any adjustment for gift tax paid by the donor will have the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a gain.
The Suds Corporation has just suffered significant losses of revenue for three quarters in a row, and the shareholders are furious. Much of the loss can be attributed to the board's decision to change from their traditional lager beer to a lighter and smoother brew. Unfortunately, the new recipe alienated current customers and failed to bring in new customers. Although Suds has announced that it will return to its original product, the shareholders are claiming the board violated its fiduciary duty of care, and they are suing the directors personally for their significant losses. What must the shareholders prove to win their lawsuit
Answer and Explanation:
The fiduciary duty of care also called duty of care is the fudicaiary responsibility that requires board directors of a company to act and make decisions in good faith, having the best interest of the company in mind. This duty(whether written or implied) makes board directors responsible in ensuring that decisions made for the company are sound, ethical and legal.
In the above example, board directors of the suds corporation may have not performed this duty as required but this would depend on thorough investigation to ascertain the method and process by which the decision was arrived on. For instance, we are sure the decision was legal and also ethical(as they were only out to improve on company products and increase revenue likewise), we are not sure however of the soundness of this decision. This leads us to investigate the processes and results obtained from enquiring/researching on this new product decided on by the board. Therefore was it sound according to these results and processes. This is where evidence of a breach of duty by the board may be found
Tan Corporation issued $600,000,000 of 7% bonds on November 1, 2015, for $644,636,000. The bonds were dated November 1, 2015, and mature in 10 years, with interest payable each May 1 and November 1. The effective-interest rate is 6%. Prepare Tan’s December 31, 2015, adjusting entry. Use effective rate method of amortization
Answer:
Interest Expense $6,446,360
Interest Payable $7,000,000
Explanation:
Interest Expense for the year =
Issued amount * Effective interest rate * [tex]\frac{Remaining months in the year}{Total months in the year}[/tex]
$644,636,000 * 0.06 * 2/12 = $6,446,360
Interest Payable =
Face Value of the bond * Interest rate * [tex]\frac{Remaining months in the year}{Total months in the year}[/tex]
$600,000,000 * 0.07 * 2/12 = 7,000,000
If a company is considering optimizing the physical location for every activity in the value chain, which of the following is not a possible strategic advantage for that decision?
A. Performance enhancement
B. Cost reduction
C. Political risk reduction
D. Life-cycle enhancement
Answer:
The correct answer is: D. Life-cycle enhancement
Explanation:
When a company wants to optimize physical locations for all activities in the value chain, it must manage all elements of the value chain to improve processes and increase the efficiency and effectiveness of the value chain. Therefore, some strategic advantages for this decision include the improvement of organizational performance, which would optimize the stages of the value chain, reducing waste, and the failures of the process, which would generate cost reduction. Compliance with legislation would also decrease political risks, being a significant strategic advantage for improving the value chain.
Therefore, the life-cycle enhancement may not constitute a strategic advantage, because this process requires greater capacity for the company to manage and monitor variable resources during the enhancement life cycle, which can generate greater difficulty in managing the value chain. and higher spending.
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 4%. Estimate the firm’s cost of internal equity.
Answer: 13.1%
Explanation:
Using the Capital Asset Pricing Model, the expected return is;
Expected Return = Risk Free rate + beta(expected return - risk free rate)
= 4% + 1.3( 11% - 4%)
= 4% + 9.1%
Expected Return = 13.1%
How do businesses and the society benefit from marketing?
Answer:
Marketing stimulates a competitive economy, promotes products and services, and targets consumers who are most likely to become purchasers. Higher sales for a company that employs effective marketing strategies translate into expansion, job creation, higher government tax revenue, and eventually, overall growth.
HAVE A GOOD DAY!
if the broker dies or loses her license, the state's real estate licensing agency may choose to appoint a ________ to close any transactions that are pending.
Answer:
temporary broker
Explanation:
A temporary broker is someone who is charged with responsibility of closing, or winding up the existing or pending business of a permanent or original licensed broker, in the event that, the original licensed broker dies or loses her license.
To become a temporary broker, the state's real estate licensing agency will issue a temporary license as a broker to a licensed or unlicensed person for a period of not more than ninety days and will not be extended, except on a special cases such as personal representative.
Hence, if the broker dies or loses her license, the state's real estate licensing agency may choose to appoint a TEMPORARY BROKER to close any transactions that are pending.
Motors is a chain of car dealerships. Sales in the fourth quarter of last year were $4,600,000. Suppose management projects that its current year's quarterly sales will increase by 3% in quarter 1, by another 7% in quarter 2, by another 5% in quarter 3, and by another 4% in quarter 4. Management expects cost of goods sold to be 45% of revenues every quarter, while operating expenses should be 30% of revenues during each of the first two quarters, 25% of revenues during the third quarter, and 20% during the fourth quarter.Required:a. Prepare a budgeted income statement for each of the four quarters and for the entire year.b. Prepare the first portion of the budgeted income statement through gross profit, then complete the statement.
Answer:
Budgeted Income Statement for each of the four quarters and for the entire year
Quarter 1st 2nd 3rd 4th
Sales $4,738,000 $5,069,660 $5,323,143 $5,536,069
Cost of Sales ($2,132,100) ($2,281,347) ($2,395,414) ($2,491,231)
Gross Profit $2,605,900 $2,788,313 $2,927,729 $3,044,838
Operating Costs ($1,421,400) ($1,520,898) ($1,330,786) ($1,107,214)
Operating Profit $1,184,500 $1,267,415 $1,596,943 $1,937,624
Explanation:
Pay attention to the calculation of the following amounts :
Sales - These are based on increments per quarterCost of Sales - The Cost for quarter is at 45% of RevenueOperating Costs - Based on Sales amounts ( 30 % in the first two quarters , 25% in third and 20% in the 4th quarter.)you are going to deposit $19000 today. You will earn an annual rateof 3.3 percent for 11 years, and then earn an annual rate of 2.7 percent for 14 years. how much will you have in your account in 25 years?
Answer:
After 25 years you will have in your account $42,782.05.
Explanation:
First find the Future value of $19000 invested today at the end of 11 years.
PV = - $19,000
Pmt = $0
P/yr = 1
r = 3.30%
n = 11
FV = ?
Using a Financial calculator, the Future Value (FV) after 11 years will be $27,155.46.
Use the $27,155.46 to find future value at the end of the next 14 years at the rate of 2.70%
PV = - $27,155.46
Pmt = $0
P/yr = 1
r = 3.30%
n = 14
FV = ?
Using a Financial calculator, the Future Value (FV) after 14 years will be $42,782.05.
Thus, after 25 years you will have in your account $42,782.05.
A company's income before interest expense and income taxes is $350,000 and its interest expense is $100,000. Its times interest earned ratio is:
Answer:
Times interest earned ratio is 3.5 times.
Explanation:
The times interest earned (TIE) ratio refers to a measure of the ability of company to honor its debt obligation form the current income of the company. TIE is also refereed to as interest coverage ratio and it can be calculated using the following formula:
TIE = EBIT / Interest expense .......................... (1)
Where;
EBIT = Earnings before interest and taxes = $350,000
Interest expense = $100,000
Substituting the values into equation (1), we have:
TIE = $350,000 / $100,000 = 3.5 times
This indicates that the income of the company is 3.5 times greater than its interest expense.
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk premium, RPM, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps. %
Answer:
The estimated cost of equity is 10.3%
Explanation:
Step 1: Find Levered Beta
The CAPM formula would be used here to find the Levered Beta. CAPM formula is given as under:
Ke = Rf + Beta * (MRP - Rf)
Current Cost of Equity of company is ke and is 15%,
Risk free rate is Rf and is 6%
Market risk premium is 7%
15% = 6% + Beta* (7% - 6%)
Levered Beta = 9
Step 2: Find the Unlevered Beta
As we know that existing Debt to Equity ratio is (30 / 70), we can use the following formula to calculate the unlevered beta:
Unlevered Beta = Levered Beta / (1 + (1-t) * D/E)
Simply by putting values, we have:
Unlevered Beta = 1.2 / (1 + (1 - 40%) * 30/70) = 7.16
Step 3: Calculate levered beta on new debt to equity ratio
Now
New Debt to Equity Ratio is 1 (50 / 50)
As we know that:
Levered Beta = Unlevered Beta * (1 + (1-t) * Debt / Equity)
Levered Beta = 7.16 * (1 - 40%) * 1) = 4.3
Step 4: Use CAPM formula to calculate Cost of equity on new gearing
Using CAPM formula, we have:
Ke = Rf + Beta * (MRP - Rf)
Ke = 6% + 4.3 * 1% = 10.3%
Privott, Inc., manufactures and sells two products: Product Z9 and Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:
Estimated Expected Activity
Activity Cost Pools Activity Measures Overhead Cost Product Z9 Product N0 Total
Labor-related DLHs $ 335,018 7,500 4,100 11,600
Product testing tests 51,247 950 1,050 2,000
Order size MHs 476,608 5,100 5,400 10,500
$ 862,873
The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to:_______
a. $28.88 per DLH
b. $48.81 per DLH
c. $53.94 per DLH
d. $431.44 per DLH
Answer:
Predetermined manufacturing overhead rate= $28.88 per direct labor hour
Explanation:
Giving the following information:
Labor-related DLHs $335,018 11,600
To calculate the predetermined manufacturing overhead rate we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 335,018/11,600
Predetermined manufacturing overhead rate= $28.88 per direct labor hour
The activity rate for the Labor-Related activity cost pool is option A. a. $28.88 per DLH
Calculation of the active rate:We know that
Activity Rate for Labor - Related Activity Cost Pool = Estimated Cost / Expected Activity
= $ 335,018 / 11,600 DLHs
= $ 28.88 per DLH
Hence the option a is correct.
And, the rest of the options are wrong.
learn more about rate here: https://brainly.com/question/24347131
what is the most important function of a leader within an organization
Answer:
Leadership is the action of leading people in an organization towards achieving goals. Leaders do this by influencing employee behaviors in several ways. A leader sets a clear vision for the organization, motivates employees, guides employees through the work process and builds morale.
Explanation:
Answer:
building consouis
Explanation:
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Ben has $500 in his savings account and the bank pays an interest rate of 10 percent a year. The inflation rate is 6 percent a year. The government taxes the interest that Ben earns on his deposit at 20 percent. Calculate the nominal after-tax interest rate and the real after-tax interest rate that Ben earns.
Answer:
Nominal after-tax interest rate = 8%Real After-Tax Interest Rate = 2%Explanation:
The Nominal rate is 10%
Inflation rate is 6%
And Tax rate is 20%
Nominal after-tax interest rate
= Nominal rate (1 - tax rate)
= 10% ( 1 - 0.2)
= 8%
Real After-Tax Interest Rate
= Nominal after-tax interest rate - inflation rate
= 8% - 6%
= 2%
The value of Mike Jackson’s shares in the New Frontiers Technology Fund is $51,400. The management fee for this particular fund is 0.80 percent of the total asset value. Calculate the management fee Mike must pay this year. (Round your answer to 2 decimal places.)
Answer:
$411.2
Explanation:
The value of Mike Jackson's shares in the New frontiers technology fund is $51,400
The management fee is 0.80%
= 0.80/100
= 0.008
Therefore, the amount of management fee that Mike must pay this year can be calculated as follows
Management fee= Total amount of investment × management fee percent
= $51,400×0.008
= $411.2
Hence the management percent fee that Mike must pay this year is $411.2
Bedford had this info at the end of 2015, its first year of operations: No other permanent or temporary differences exist. The litigation item will be paid in 2018. The depreciation will reverse evenly over the next three years. Tax rate is 30%. Future net income is probable. The 12/31/15 Income Tax Payable is:
Answer: $150,000
Explanation:
Seeing as the litigation expense will only be paid in 2018, it should be added back to income for 2015.
= 900,000 + 100,000
= $1,000,000
As the depreciation will reverse evenly over the next three years and with future income probable, it should be removed from income.;
= 1,000,000 - 300,000
= $700,000
Municipal Bonds have the advantage of being Tax-exempt so their interest income should be removed to calculate how much tax should be paid.
= 700,000 - 200,000
= $500,000
2015 Income Tax Payable = 500,000 * 30%
= $150,000
Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are $10.00 per order, and carrying costs are $0.04 per pound per day. Lead time for each order is 3 days, and the pepperoni itself costs $3.00 per pound. If she were to order 80 pounds of pepperoni at a time, what would be the average invent
Answer:
40 pounds would be the average inventory
Explanation:
Total Order quantity= 80 pounds
Average inventory level = Order quantity / 2
= 80 pounds / 2
= 40 pounds
Hence, 40 pounds would be the average inventory
Ranger Corporation is currently selling widgets for $40 at a cost of $20 per unit. Fixed costs are currently $500 and the current production is 100 widgets. What is the Operating Cash Flow at this output level
Answer: $2000
Explanation:
From the question, we are informed that Ranger Corporation is currently selling widgets for $40 at a cost of $20 per unit and that the fixed costs are currently $500 and the current production is 100 widgets.
The Operating Cash Flow at this output level will be:
= (P - V) × Q
where p = selling price = $40
v = cost price = $20
q = quantity = 100
= ($40 - $20) × 100
= $20 × 100
= $2000
1. A small-scale businessman deposits money at the beginning of each year into his savings account, depending on the level of the business’ returns. He deposits $1000 in the first year, $3000 in the second year, $5000 in the third and $7000 in the fourth year and annual interest rate of 7%. What is the value of the investment at the time of his first deposit?
Answer:
The value of the investment at the time of his first deposit is $1,000.
At the end of the first year, the investment will be worth $1,070.
Explanation:
The value of a deposit investment is determined by the interest rate and time. Time affects the value of an investment by this small-scale businessman in many ways. The passage of time increases the value of his investment. However, the total increase may not be due to the interest rate, but inflation also affects asset's value. For this businessman to make a gain in the investment, the interest rate must be higher than the inflation rate. Otherwise, the investment loses money due to the effects of inflation, which reduces the real value of an asset over time.
Profit or Loss on New Stock Issue Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows: Price to public: $5 per share Number of shares: 3 million Proceeds to Beedles: $14,000,000 The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $340,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? $5 per share? Use minus sign to enter loss, if any. $ $6.25 per share? Use minus sign to enter loss, if any. $ $4.25 per share? Use minus sign to enter loss, if any.
Answer and Explanation:
The computation of profit or loss is shown below:
The formula used is
= (Price × number of shares) - proceeds to Beedles - out of pocket expenses
a. For $5 per share
= ($5 × 3 million shares) - $14,000,000 - $340,000
= $15,000,000 - $14,000,000 - $340,000
= $660,000
b. For $6.25 per share
= ($6.25 × 3 million shares) - $14,000,000 - $340,000
= $18,750,000 - $14,000,000 - $340,000
= $4,410,000
c. For $5 per share
= ($4.25 × 3 million shares) - $14,000,000 - $340,000
= $12,750,000 - $14,000,000 - $340,000
= -$1,590,000
You have a $4 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions? Show your work.
Answer:
1.1125
Explanation:
the relative weight of the stocks that you are selling is $100,000/$4,000,000 = 0.025 = 2.5% of the portfolio
this means that their effect on the portfolio's beta was 0.9 x 0.025 = 0.0225
the new stocks that you want to purchase have a beta of 1.4 and their relative effect on the portfolio's beta will be 1.4 x 0.025 = 0.035
the difference between both stocks = 0.035 - 0.0225 = 0.0125
that means that the portfolio's new beta = 1.1 + 0.0125 = 1.1125
A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is:
Answer:
Break-even point (dollars)= $275,040
Explanation:
Giving the following information:
Selling price per unit $120
Variable cost per unit $90
Fixed expense per month $68,760
To calculate the break-even point in dollars, we need to use the following formula:
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 68,760 / [(120 - 90)/120]
Break-even point (dollars)= $275,040
The Borio Company had an asset with an $8 book value and a $7 market value; it decided to distribute the asset as a property dividend. Journal entries were made to adjust the property to market value and declare the dividend. Indicate the combined effect on the Net Income and Total Assets, respectively:
Answer:
The net income will decrease and also the total assets will also decrease
Explanation:
Here, we want to know the combined effect on net income and total assets of company that made a decision of distributing assets as a property dividend.
As the asset value is down the entry is asset (credit) and loss on asset (debit)
This will effect the net income as it will come down and total assets value also come down
Assume the Small Components Division of Martin Manufacturing produces a video card used in the assembly of a variety of electronic products.The highest acceptable transfer price for the divisions is the Small Components Division's
Answer:
Minimum Transfer Price.
Explanation:
The price that is acceptable by Small Components Division when transferring to the internal division must cover the variable manufacturing cost (less internal savings) plus opportunity cost incurred.
This price is known as the Minimum Transfer Price for the Transferring Division (Small Components Division) and would never accept a transfer with any price lower than this.
DeLong Corporation was organized on January 1, 2017. It is authorized to issue 14,500 shares of 8%, $100 par value preferred stock, and 450,000 shares of no-par common stock with a stated value of $3 per share. The following stock transactions were completed during the first year.
Jan. 10 Issued 84,500 shares of common stock for cash at $6 per share.
Mar. 1 Issued 5,150 shares of preferred stock for cash at $110 per share.
Apr. 1 Issued 23,500 shares of common stock for land. The asking price of the land was $91,000. The fair value of the land was $81,500.
May 1 Issued 84,000 shares of common stock for cash at $5.00 per share.
Aug. 1 Issued 10,000 shares of common stock to attorneys in payment of their bill of $39,500 for services performed in helping the company organize.
Sept.1 Issued 11,500 shares of common stock for cash at $7 per share.
Nov. 1 Issued 2,000 shares of preferred stock for cash at $111 per share.
Journalize the transactions.
Answer:
Jan. 10
Cash $507,00 (debit)
Common Stock $507,00 (credit)
Mar 1
Cash $566,500 (debit)
Preferred Sock $515,000 (credit)
Share Premium : Preferred Stock $51,500 (credit)
April 1
Land $91,000 (debit)
Common Stock $91,000 (credit)
May 1
Cash $420,000 (debit)
Common Stock $420,000 (credit)
Aug 1
Legal Expenses : Attorneys bill $39,500 (debit)
Common Stock $39,500 (credit)
Sept 1
Cash $80,500 (debit)
Common Stock $80,500 (credit)
Nov 1
Cash $222,000 (debit)
Preferred Sock $200,000 (credit)
Share Premium : Preferred Stock $22,000 (credit)
Explanation:
Common Stocks are at no par value:
This means that ,
1.When Common Stocks are Issued, the value is the issue price there is no share premium reserve on it.
2. For consideration paid in Common Stocks, value of stocks would be the same as the cost at initial recognition. For example the Purchase of Land on April 1. Initial recognition is at Asking Price of $91,000. Hence common stocks are issued at $91,000.
Preference Stocks are at $100 par
This means that,
1.Any issue of Preference Stock made in excess of par value is accounted in the Preference Share Premium Reserve.