SolutionsSession1

# SolutionsSession1 - Common stock = 500(\$2 Common stock =...

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Session 1 - Solutions 13-2. The diagram does not support the efficient markets hypothesis. The CAR should remain relatively flat following the announcements. The diagram reveals that the CAR rose in the first month, only to drift down to lower levels during later months. Such movement violates the semi-strong form of the efficient markets hypothesis because an investor could earn abnormal profits while the stock price gradually decreased. 14-2. a. The common stock account is the shares outstanding times the par value per share, or:
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Unformatted text preview: Common stock = 500(\$2) Common stock = \$1,000 So, the total equity account is: Total equity = \$1,000 + 250,000 + 750,000 Total equity = \$1,001,000 b. The capital surplus on the sale of the new shares of stock is the price per share above par times the shares sold, or: Capital surplus on sale = (\$30 – 2)(5,000) Capital surplus on sale = \$140,000 So, the new equity accounts will be: Common stock, \$2 par value 5,500 shares outstanding \$ 11,000 Capital surplus 390,000 Retained earnings 750,000 Total \$1,151,000...
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## This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Spring '09 term at UMBC.

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