Ch 15

E15-2 (Recording the Issuance of Common and Preferred Stock) Kathleen Battle
Corporation was organized on January 1, 2014. It is authorized to issue 10,000 shares of 8%,
$100 par value preferred stock, and 500,000 shares of no-par common stock with a stated
value of $1 per share. The following stock transactions were completed during the first year.

Jan. 10 Issued 80,000 shares of common stock for cash at $5 per share.
Mar. 1 Issued 5,000 shares of preferred stock for cash at $108 per share.
Apr. 1 Issued 24,000 shares of common stock for land. The asking price of the land was
$90,000; the fair
value of the land was $80,000.
May 1 Issued 80,000 shares of common stock for cash at $7 per share.
Aug. 1 Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000
for services
rendered in helping the company organize.
Sept. 1 Issued 10,000 shares of common stock for cash at $9 per share.
Nov. 1 Issued 1,000 shares of preferred stock for cash at $112 per share.
Instructions
Prepare the journal entries to record the above transactions.
E15-3 (Stock Issued for Land) Twenty-five thousand shares reacquired by Elixir
Corporation for $53 per share were exchanged for undeveloped land that has an appraised
value of $1,700,000. At the time of the exchange, the common stock was trading at $62 per
share on an organized exchange.
Instructions
(a) Prepare the journal entry to record the acquisition of land assuming that the purchase of
the stock
was originally recorded using the cost method.
(b) Briefly identify the possible alternatives (including those that are totally unacceptable) for
quantifying
the cost of the land and briefly support your choice.
E15-4 (Lump-Sum Sale of Stock with Bonds) Faith Evans Corporation is a regional
company which is an SEC registrant. The corporations securities are thinly traded on
NASDAQ. Faith Evans Corp. has issued 10,000 units. Each unit consists of a $500 par, 12%
subordinated debenture and 10 shares of $5 par common
stock. The investment banker has retained 400 units as the underwriting fee. The other 9,600
units were
sold to outside investors for cash at $880 per unit. Prior to this sale, the 2-week ask price of
common stock
was $40 per share. Twelve percent is a reasonable market yield for the debentures, and
therefore the par
value of the bonds is equal to the fair value.
Instructions
(a) Prepare the journal entry to record Evans transaction, under the following conditions.
(1) Employing the incremental method.
(2) Employing the proportional method, assuming the recent price quote on the common
stock
reflects fair value.
(b) Briefly explain which method is, in your opinion, the better method.
E15-6 (Stock Issuances and Repurchase) Lindsey Hunter Corporation is authorized to issue
50,000 shares
of $5 par value common stock. During 2014, Lindsey Hunter took part in the following
selected transactions.
1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock
totaling $7,000.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded
on a
national stock exchange at approximately $46 per share on the date of issuance.
3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased
were issued
in 2010 at $40 per share.
Instructions
(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.
(c) Prepare the journal entry to record item 3 using the cost method.
E15-8 (Preferred Stock Entries and Dividends) Otis Thorpe Corporation has 10,000 shares
of $100 par
value, 8%, preferred stock and 50,000 shares of $10 par value common stock outstanding at
December 31,
2014.
Instructions
Answer the questions in each of the following independent situations.
(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on
December
31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014,
balance sheet? How should these dividends be reported?
(b) If the preferred stock is convertible into seven shares of $10 par value common stock and
4,000
shares are converted, what entry is required for the conversion assuming the preferred stock
was
issued at par value?
(c) If the preferred stock was issued at $107 per share, how should the preferred stock be
reported in
the stockholders equity section?
CH17
E17-7 (Trading Securities Entries) On December 21, 2013, Bucky Katt Company provided
you with the
following information regarding its trading securities.

During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on
December 31,
2014, was Clemson Corp. stock$19,100; Buffaloes Co. stock$20,500.
Instructions
(a) Prepare the adjusting journal entry needed on December 31, 2013.
(b) Prepare the journal entry to record the sale of the Colorado Company stock during 2014.
(c) Prepare the adjusting journal entry needed on December 31, 2014.
E17-8 (Available-for-Sale Securities Entries and Reporting) Satchel Corporation
purchases equity securities
costing $73,000 and classifies them as available-for-sale securities. At December 31, the fair
value of
the portfolio is $65,000.
Instructions
Prepare the adjusting entry to report the securities properly. Indicate the statement
presentation of the
accounts in your entry.
E17-9 (Available-for-Sale Securities Entries and Financial Statement Presentation) At
December 31,
2013, the available-for-sale equity portfolio for Steffi Graf, Inc. is as follows.

On January 20, 2014, Steffi Graf, Inc. sold security A for $15,100. The sale proceeds are net
of brokerage fees.
Instructions
(a) Prepare the adjusting entry at December 31, 2013, to report the portfolio at fair value.
(b) Show the balance sheet presentation of the investment-related accounts at December 31,
2013.
(Ignore notes presentation.)
(c) Prepare the journal entry for the 2014 sale of security A.
E17-16 (Fair Value and Equity Method Compared) Jaycie Phelps Inc. acquired 20% of the
outstanding
common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was
$1,200,000 for
50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June
30 and on
December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of
Kulikowskis
stock was $27 per share at December 31, 2014.
Instructions
(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps
cannot
exercise significant influence over Kulikowski. The securities should be classified as
availablefor-
sale.
(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps
can
exercise significant influence over Kulikowski.
(c) At what amount is the investment in securities reported on the balance sheet under each of
these
methods at December 31, 2014? What is the total net income reported in 2014 under each of
these
methods?
P17-2 (Available-for-Sale Debt Securities) On January 1, 2014, Novotna Company
purchased $400,000,
8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% interest.
Interest is payable
semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna
Company uses the
effective-interest method to amortize discount or premium. On January 1, 2016, Novotna
Company sold
the bonds for $370,726 after receiving interest to meet its liquidity needs.
Instructions
(a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the
bonds are
classified as available-for-sale.
(b) Prepare the amortization schedule for the bonds.
(c) Prepare the journal entries to record the semiannual interest on July 1, 2014, and
December 31, 2014.
(d) If the fair value of Aguirre bonds is $372,726 on December 31, 2015, prepare the
necessary adjusting
entry. (Assume the fair value adjustment balance on January 1, 2015, is a debit of $3,375.)
(e) Prepare the journal entry to record the sale of the bonds on January 1, 2016.