Question 1 1. On September 1, 2000, Galaxy Corporation’s common stock was selling at a market price of $150 per share. On that date, Galaxy announced a 3 for 2 stock split. At what pri
1. On September 1, 2000, Galaxy Corporation’s common stock was selling at a market price of $150 per share. On that date, Galaxy announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into effect?
2. When treasury stock is reissued at a price above cost:
A) The corporation recognizes a gain to be recorded on the income statement
B) Total paid-in capital is increased.
C) The reissuance is treated as an extraordinary item in the corporation’s income statement.
D) Retained earnings is increased.
3. Alpha Corporation is authorized to issue 2,000,000 shares of $3 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $90,000 during the first three months of operation, and declared a cash dividend of $15,000. The total paid-in capital of Alpha Corporation after three months of operation is:
4. Bijou Corporation issued 200,000 shares of $5 par value common stock at the time of its incorporation. The stock was issued for cash at a price of $20 per share. During the first year of operations, the company sustained a net loss of $100,000. The year-end balance sheet would show the balance of the Common Stock account to be:
5. Adella Corporation has outstanding 50,000 shares of $1 par value common stock as well as 10,000 shares of 6%, $100 par value cumulative preferred stock. At the beginning of the year, the balance in retained earnings was $500,000, and one year’s dividends were in arrears. Net income for the current year is $260,000. Compute the balance in retained earnings at the end of the year if Adella Corporation pays a dividend of $2 per share on its common stock this year.
Use the following to answer question 6 :
On January 1, 2002, Moon Corporation issued 80,000 shares of its total 200,000 authorized shares of $3 par value common stock for $10 per share. On December 31, 2002, Moon Corporation’s common stock is trading at $15 per share.
6. Refer to the above data. Assuming Moon Corporation did not issue any more common stock in 2002, how does the increase in value of its outstanding stock affect Moon?
A) Moon should recognize additional net income for 2002 of $5 per share, or $400,000.
B) Paid-in capital at December 31, 2002, is $1,200,000 (i.e. 80,000 shares times $15 per share).
C) This increase in market value of outstanding stock is not recorded in the financial statements of Moon Corporation.
D) Each shareholder must pay an additional $5 per share to Moon.