PART 1 Fifo Inc. raises $4 million dollars by issuing shares of common stock.The market rate of interest is 10% at the time of issue.
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PART 1


Fifo Inc. raises $4 million dollars by issuing shares of common

stock. The market rate of interest is 10% at the time of issue. Assuming a corporate income tax rate of 30%, 100,000 common shares issued, and an increase in net income of $1,000,000 due to the additional resources, what is the effect on earnings per share?

a.      $40 increase

b.     $28 increase

c.      $4.20 increase

d.     $7 increase 


Loretta Inc. issues 2,000 shares of preferred stock in exchange for land and building that have a fair value of $50,000 and $80,000 respectively. What is included in the journal entry to record this transaction? 

a.    A debit to Land and Building for $130,000

b.     A debit to Land for $80,000

c.      A credit to Preferred Stock for $130,000 

d.     A credit to Preferred Stock for $2,000


Sabie Inc. has 100,000 authorized shares of common stock, 2,000 shares issued and 1,800 outstanding. It has decided to declare a 2‐for‐1 stock split when the average cost per share is $10. What is the effect of this stock split? 

a.   Stock outstanding increases to 3,600  

b.     Stock issued is unchanged

c.      Stockholder's equity decreases by $20,000

d.     Stockholder's equity increases by $18,000


A company is authorized to issue 500,000 shares of common stock. There are 5,000 outstanding shares. The board declares a cash dividend of $.50 per share on December 1, 2019. What is included in the journal entry to record the declaration of the dividend?

a.      A debit to Cash Dividends Declared of $2,500 

b.     A credit to Retained Earnings of $2,500

c.      A debit to Cash Dividends Declared of $250,000

d.     No entry is made


A company has the following capital stock outstanding: preferred shares of $15,000, common shares of $30,000, retained earnings of $100,000. Preferred dividends in arrears amount to $5,000. There are 10,000 shares of common stock and 1,000 shares of preferred outstanding. What is the book value of one share of common stock?

a.    $12.50 

b.     $20

c.      $105

d.     $125


A company has the following capital stock outstanding: preferred shares of $15,000, common shares of $30,000, retained earnings of $100,000. Preferred dividends in arrears amount to $5,000. There are 10,000 common shares and 1,000 preferred shares issued. What is the book value one share of preferred stock?

a.      $12.50

b.     $20 

c.      $105

d.     $125




PART 2: Financial statement effects


Required:


For each event listed below, indicate whether the amount of each financial statement component is

  • increased or decreased .
  • Mark + or - 
  •  Indicate with an 'x' if there is no change. (See the response to statement 1 below.)

Consider each event to be unrelated to the others, unless otherwise indicated. 


        Assets  | Liabilities   | Stockholders' Equity 


1.      Declared of cash dividend  x - +

2.      Paid the cash dividend in item 1       

3.      Split common stock 2:1       

4.      Declared a stock dividend       

5.      Redeemed preferred stock for cash       

6.      Paid a stock dividend              

7.    Recorded a restriction on retained earnings       

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