Question 1

Omega Co. issued 10,000 ordinary shares, with a par value of $8, for $13 per
share.
The company’s balance in retained earnings is $75,000. Prepare the equity section
the company’s balance sheet.

Question 2
Beta Co. issued 10,000 ordinary shares, with a par value of $25, for $28 per share.
The company also issued 1,000 shares of $100 par value preference shares for
$110. Assume the balance in retained earnings is $80,000. Prepare the equity
section of Beta’s balance sheet.

Question 3
Zeta Co. has outstanding 100,000 7%, $100 par value cumulative preference
shares. The company has not declared any cash dividends on the preference
shares for the last three years. Calculate the amount of dividends in arrears for
the last three years on Zeta’s preference shares and briefly explain how this
amount will be known to investors / creditors who may use the company’s
financial statements.

Question 4
Mega Inc. has following outstanding shares:
Preference shares: 10,000 shares 6%, $100 par value, cumulative
Ordinary shares: 50,000 shares, $50 par value
The company declares a total dividend of $225,000. If the dividends on
preference shares includes one year in arrears (in addition to the current year),
how will the total dividend be divided between the ordinary and preference
shareholders?
Question 5
Baker Company has following outstanding shares:
8% Preference shares: 10,000 shares, $100 par value
Ordinary shares: 100,000 shares, $30 par value
Dividend on preference shares have not been paid for the last three years (in
addition to the current year). If the company pays a total of $120,000 in
dividends, how much will the ordinary shareholders receive per share if the
preference shares are not cumulative? How will your answer differ if the
preference shares are cumulative?

Question 6
Smelling Company declared a 2-for-1 stock split on its ordinary shares in order to
intentionally reduce the market value of its shares so that it would be an
attractive investment for a larger set of investors. The company’s ordinary shares
are described as follows:
Ordinary shares: 100,000 shares outstanding, $10 par value, originally sold at
$12.50, current market price $50.
Describe the likely impact, if any, that the 2-for-1 stock split will have on
(a) the number of shares outstanding,
(b) the market price of the shares, and
(c) the total shareholders’ equity attributable to ordinary shares.

Question 7
Melcher Inc. originally issued 100,000 shares of its $10 par value ordinary shares
at $25 per share.
Several years later the company repurchased 10,000 of these shares at $57 per
share. Melcher currently holds those shares in treasury. Prepare the company’s
shareholders’ equity section of the balance sheet to reflect this information.
Question 8
Weller Inc. issued 1,000,000 ordinary shares of $25 par value at $32. It
subsequently repurchased 100,000 of those shares at $50 per share and then sold
70,000 of those shares at $55.
Calculate the total amount of shareholders’ equity given the above transactions.

Question 9
When Resisto Systems Inc. was formed, the company was authorized to issue
5,000 8%, $100 par value cumulative preference shares, and 100,000 ordinary
shares of $2 par value.
Half of the preference shares were issued at a price of $103 per share, and 70,000
ordinary shares were sold for $13 per share. At the end of the current year,
Resisto has retained earnings of $475,000.
a. Prepare the shareholders’ equity section of the company’s balance sheet at the
end of current year.
b. Assume Resisto Systems’s ordinary shares are trading at $24 per share and its
preference shares are trading at $107 per share at the end of the current year.
Would the shareholders’ equity section prepared in part ‘a’ be affected by this
additional information?

Question 10
Minor Company, is authorized to sell 1,200,000 ordinary shares of $10 par value
and 60,000 6%, $100 par value preference shares. As of the end of the current
year, the company has actually issued 550,000 ordinary shares at $12 per share
and 40,000 preference shares at $110 per share. In addition, of the 550,000
ordinary shares that have been issued, 25,000 shares have been repurchased at
$23 per share and are currently being held in treasury to be used to meet the
future requirements of a stock option plan that the company intends to
implement.
a. Prepare the general journal entries required to record all of the above
transactions.
b. Prepare the shareholders’ equity section of Minor’s balance sheet to reflect the
transactions you have recorded.

Question 11
Twin Towns Inc. was authorized to issue 300,000 ordinary shares and originally
issued 100,000 shares of $10 par value at $18 per share. Subsequently, 25,000
shares were repurchased at $20, of which 10,000 were subsequently resold at
$23.
Assume the company’s retained earnings balance is $120,000.
a. Prepare the shareholders’ equity section of Twin Towns’s balance sheet.
b. Briefly explain how the declaration and distribution of a 2-for-1 stock split
subsequent to the above transactions would affect the shareholders’ equity
section you have prepared.

Question 12
Early in the year Debra Deal and several friends organized a corporation called
Markup Inc. The corporation was authorized to issue 100,000 shares of $100 par
value, 5 percent cumulative preference shares and 100,000 ordinary shares of $1
par value. The following transactions (among others) occurred during the year:
Jan. 7 Issued for cash 30,000 ordinary shares at $10 per share. The shares
were issued to Deal and four other investors.
Jan. 12 Issued an additional 1,000 ordinary shares to Deal in exchange for
her services in organizing the corporation. The shareholders agreed
that these services were worth $12,000.
Jan. 18 Issued 4,000 preference shares for cash of $400,000.
July 5 Acquired land as a building site in exchange for 10,000 ordinary
shares. In view of the appraised value of the land and the progress of
 the company, the directors agreed that the ordinary shares shall be
valued for purposes of this transaction at $12 per share.
Nov. 25 The first annual dividend of $5 per share was declared on the
preference shares to be paid December 11.
Dec. 11 Paid the cash dividend declared on November 25.
Dec. 31 After the revenue and expenses were closed into the profit and loss
account, there was a net income of $810,000.
a. Prepare journal entries in general journal form to record the above
transactions.
b. Prepare the shareholders’ equity section of the Markup Inc. balance sheet at
December 31.