XACC 291 Exercises and Problems Week 6

Topics: Stock, Finance, Corporate finance Pages: 4 (448 words) Published: January 20, 2015

Exercises and Problems - Week 6
XACC/291
12/21/2014

Exercises and Problems - Week 6

Before AfterAfter Action Dividend Stock Split Stock holders’ equity
Paid in capital
Common stock, $10 par$ 600,000$630,000$600,000
Paid in capital in excess par value$0.$12,0000
Total paid in capital$600,000$642,000$600,000
Return earnings$900,000$858,000$900,000
Total stock holders’ equity $1,500,000$1,500,000$1,500,000 Outstanding shares$60,000 $66,000 $120,000

E 12-1

1. Companies purchase investments in debt or stock securities because they have excess cash, earnings from investment income, and strategic reasons. 2. A company will have excess cash it does not need for operations because of seasonal fluctuates it sales. The company will use excess funds for a bigger return than holding in the bank. 3. A typical investment when investing cash for a short period of time would be a short term government security. 4. A typical investment when investing in cash to generate earnings would be investing in debt. 5. A company would invest in securities that provide zero cash flow for strategic reasons such as influence over customers or make presence known by a related company in the industry. 6. A typical stock investment when investing cash for strategic reasons would be in a related or no related company. This will allow expansion and control.

E12-2

A.
Jan. 1 Debt Investments$50,000
Cash$50,000
(To record purchase of 50 Choate Co. bonds)

July1 Cash $2,000
Interest revenue $2,000 (To record receipt of interest on Choate Co. bonds)

July1 Cash $33,500
Loss on sale $8,050
Debt Investments $25,450...
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