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Chapter 12 sample test

# Chapter 12 sample test - Chapter 12 sample test 1 Calculate...

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Chapter 12 sample test 1. Calculate the total cash the First Corporation would receive if it issues 1,000 shares of \$.02 par value per share common stock at a \$9 market price per share. The key to this problem is to recognize that the cash a company receives when it issues stock is based on the number of share issued and the market price per share. The company would receive \$9,000 when it issues the 1,000 shares. 1,000 shares x \$9 market price per share = \$9,000 cash. See text exercise 12.1 for similar material. 2. The Second Corporation is authorized to issue a total of 10,000 shares of \$.10 par value common stock. Calculate the price per share the corporation must receive in order to raise \$80,000 by issuing 10,000 common shares to the public. The key to this problem is to recognize that the cash a company receives when it issues stock is based on the number of share issued and the market price per share. Since the company wants to receive \$80,000 when it issues the 10,000 shares, it must receive \$8 per share for the shares. 10,000 shares x market price per share = \$80,000 cash. Market price per share = \$80,000 cash / 10,000 shares = \$8 per share. See text exercise 12.2 for similar material. 3. The Third Corporation's March 3 balance sheet included the following information. Total assets \$620,000 Total liabilities \$320,000 Stockholders' equity Contributed Capital Common stock, \$.50 par, 400,000 shares issued \$200,000 Retained earnings \$100,000 Total stockholders' equity \$320,000 On March 4, the corporation used \$20,000 cash to buy back and retire 40,000 shares of its common stock. Calculate the percentage of the corporation's assets obtained through owners' investments after the 40,000 common shares were retired on March 4. The key to this problem is to recognize that when a company retires its stock, assets and stockholders' equity decrease. In this case, since the company was able to acquire its stock at its par value (\$.50 per share), cash and common stock both decrease by

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\$20,000. As a result, the company's assets decrease to \$600,000 and its contributed capital decreases to \$180,000. So, immediately after the stock is retired, 30% of the corporation's assets were obtained from owners. Before Retirement After Retirement Assets \$620,000 \$600,000 Contributed capital \$200,000 \$180,000 \$180,000 contributed capital / \$600,000 assets = .3 or 30%. See text exercise 12.3 for similar material. 4. On April 4, the Fourth Corporation acquired 20,000 shares of Lowell Corporation's common stock and still owns the shares on April 30. There are a total of 2,000,000 common shares of Lowell Corporation outstanding on April 30. Calculate the percentage of the Lowell Corporation owned by the Fourth Corporation on April 30. The key to this problem is to recognize that corporate ownership is based on the number of shares owned. Since the Fourth Corporation owns 20,000 shares out of a total of 2,000,000 shares, the Fourth Corporation owns 1% of the Lowell Corporation. 20,000 shares owned by the Fourth Corporation / 2,000,000 Lowell Corporation shares outstanding = .01 or 1%.
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