Earl was engaged by Farm Corp to perform consulting services. Earl\'s compensati
ID: 1206590 • Letter: E
Question
Earl was engaged by Farm Corp to perform consulting services. Earl's compensation for these services consisted of 1,000 shares of Farm's $10 par value common stock, to be issued to Earl on completion of Earl's services. On the execution date of Earl's employment contract. Farm's stock had a market value of $40 per share. Six months later, when Earl's services were completed and the stock issued, the stock's market value was $50 per share. Farm's management estimated that Earl's services were worth $100,000 in cost savings to the company. As a result of this transaction, additional paid-in capital should increase by $100,000 $90,000 $40,000 $30,000 Ashe Corp. was organized on January 1. with authorized capital of 100,000 shares of $20 par value common stock. During the year. Ashe had the following transactions affecting equity: January 10 - issued 25,000 shares at $22 a share March 25 - issued 1,000 shares for legal services when the fair value was $24 a share September 30 - issued 5,000 shares for a tract of land when the fair value was $26 a share What amount should Ashe report for additional paid-in capital at December 31? $84,000 $80,000 $54,000 $50,000 On July 1, Rya Corporation issued 1,000 shares of its $20 par common and 2,000 shares of its $20 par convertible preferred stock for a lump sum of $80,000. At this date, Rya's common stock was selling for $36 per share and the convertible preferred stock for $27 per share. The amount of proceeds allocated to Rya's preferred stock should be $60,000 $54,000 $48,000 $44,000 Beck Corp. issued 200,000 shares of common stock when it began operations in Year 1 and issued an additional 100,000 shares in Year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In Year 3, Beck purchased 75,000 shares of its common stock and held it in treasury. At the end of Year 3, how many shares of Beck's common stock were outstanding? 400.000 325,000 300,000 225,000Explanation / Answer
15) Answer (D) is correct.
16. Answer (A) is Correct
Explanation
i) CASH(25,000 SHARES X $22) 550,000
COMMON STOCK (25,000 SHARES X $20) 500,000
ADDITIONAL PAID IN CAPITAL 50,000
ii) GENERAL EXPENSES (1,000 SHARES X $24) 24,000
COMMON STOCK 20,000
ADDITONAL PAID IN CAPITAL 4,000
iii) LAND (5,000 SHARES X $26) 130,000
COMMON STOCK 100,000
ADDITIONAL PAID IN CAPITAL 30,000
January 10: $22 – $20 = $2 X 25,000 shares = $50,000
March 25: $24 – $20 = $4 X 1,000 shares = 4,000
September 30: $26 – $20 = $6 X 5,000 shares = 30,000
17) Answer (C) is correct.
Explanation
Given that the 1,000 shares of common stock and 2,000 shares of preferred stock were issued for a lump sum of $80,000, the proceeds should be allocated based on the relative fair values of the securities issued. The fair value of the common stock is $36,000 (1,000 shares × $36). The fair value of the preferred stock is $54,000 (2,000 shares × $27). Because 60% [$54,000 ÷ ($54,000 + $36,000)] of the total fair value is attributable to the preferred stock, it should be allocated $48,000 ($80,000 × 60%) of the proceeds.
18) Answer (D) is correct.
Explanation
The number of common shares outstanding is equal to the issued shares less treasury shares. Beck Corp. had 300,000 shares outstanding at 1/1/Y1. The purchase of treasury shares in year 3 reduced the number of shares outstanding to 225,000 (300,000 75,000). The preferred stock convertible into 100,000 shares of common stock is recorded as preferred stock until it is converted by the stockholder.
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