Problem 11-13 Effects of Stockholder’s Equity Transactions on the Balance Sheet
ID: 2443541 • Letter: P
Question
Problem 11-13 Effects of Stockholder’s Equity Transactions on the Balance SheetThe following transactions occurred at Horton Inc. during its first year of operation:
a)Issued 100,000 shares of common stock at $5 each; 1,000,000 shares are authorized at $1 par value.
b)Issued 10,000 shares of common stock for a building and land. The building was appraised for $20,000, but the value of the land is undeterminable. The stock is selling for $10 ob the open market.
c)Purchased 1,000 shares of its own common stock on the open market for $16 per share.
d)Declared a dividend of $0.10 per share on outstanding common stock. The dividend is to be paid after the end of the first year of operations. Market value of the stock is $26.
e)Declared a 2-for -1 stock split. The market value of the stock was $37 before the stock split.
f)Reported $180,000 of income for the year.
Explanation / Answer
a) Issued 100,000 shares of common stock at $5 each; 1,000,000 shares are authorized at $1 par value.
Assets was increased by $500,000 (100,000shares*$5 each= $500,000)
b) Issued 10,000 shares of common stock for a building and land. The building was appraised for $20,000, but the value of the land is undeterminable. The stock is selling for $10 ob the open market.
Assets was increased because building was appraised for $20,000 and 10000*10 = 100000 (so land value is 100000 – 20000 = 80000 )
c) Purchased 1,000 shares of its own common stock on the open market for $16 per share.
Assets was because they Purchased 1,000 shares @ $16(1000*16 = 16000)
d) Declared a dividend of $0.10 per share on outstanding common stock. The dividend is to be paid after the end of the first year of operations. Market value of the stock is $26.
Change in liability (100000 + 1000 - 1000) 0.10 = 10900
e) Declared a 2-for -1 stock split. The market value of the stock was $37 before the stock split.
No change as there is no accounting entry
f) Reported $180,000 of income for the year.
Income of 180000 is an increase in assets