• ConAgra has 24,000 employees worldwide.
1. Stated value for stock is much more flexible than par value. Par value is assigned in the charter and to
2. Subscription plans might attract investments by persons who do not have large enough sums of money
available to pay for blocks of stock immediately. When the capital market is tight, a corporation may be
4. The minute book is a place to formally record all the decisions made at meetings of stockholders and
meetings of the board of directors.
6. Par value is the value assigned by the corporate charter to each share of stock for accounting and certain
legal purposes. A corporation may issue no-par stock.
7. Restricted agency means that a shareholder cannot act on behalf of the business whose stock they own
Discussion Questions
Chapter Opener: Thinking Critically
CORPORATIONS: FORMATION AND CAPITAL STOCK
TRANSACTIONS
CHAPTER 20
Along with the rights to participate in stockholder meetings and elect the board of directors, stockholders can
vote on basic corporate policy issues.
Fast Facts
Discussion Questions (continued)
9. Stockholders elect directors. Directors make policies and appoint officers. Officers carry out policies
10. A stock subscription is a contract in which an investor agrees to buy stock at a specified price, to pay
for it in accordance with a fixed plan, and to receive the stock when payment has been completed.
12. The registrar accounts for all of the stock issued by the corporation. The registrar receives from the
13. Organization costs are normally charged to expense as they are incurred, primarily because if
capitalized they would be an intangible asset with an unlimited life, subject to the impairment rules of
14. The control account for stockholders is Capital Stock—Common (or Common Stock).
16. Cumulative preferred stock is that stock on which regular specified dividends must be paid in the
current year and for prior years before any dividend can be paid on common stock.
18. Convertible preferred stock is preferred stock that can be converted into common stock at a
19. Common Stock Subscribed reflects the par value or stated value of the stock subscribed and is shown
20. Almost all corporations are chartered by the state, though a few are chartered by the federal
21. Bylaws are the guidelines for operating the business.
23. The major benefits are (a) a Subchapter S Corporation does not pay a federal income tax, but the entity
24. Par value is specified in the charter. In order to change par value, it would be necessary to amend the
charter. Stated value is assigned to no-par stock by the directors and can be changed by them.
EXERCISE 20.1
EXERCISE 20.2
1. 2013
Dividend requirement for preferred stock = $400,000 (40,000 shares $10 per share)
2. 2014
Dividend requirement for preferred stock = $400,000
EXERCISE 20.3
1. 2013
Dividend requirement for preferred stock = $1,200,000 (assuming no dividends in arrears)
(100,000 shares × $80 par value × 0.15)
EXERCISE 20.3 (continued)
2. 2014
Dividend requirement for preferred stock $1,500,000 = $1,200,000 + $300,000 dividends in arrears
(100,000 shares x $80 par value per share x 0.15 = $1,200,000)
Dividends paid = $1,800,000
EXERCISE 20.4
EXERCISE 20.5
EXERCISE 20.6
2. The minimum period to amortize these costs for tax purposes is 60 months. The maximum is 40 years.
EXERCISE 20.7
PAGE
POST.
REF.
1 2013 1
2 Jan. 2 Cash 735 0 0 0 00 2
EXERCISE 20.8
PAGE
POST.
REF.
1 2013 1
2 Jan. 2 Cash 52 0 0 0 00 2
EXERCISE 20.9
PAGE
POST.
REF.
1 2013 1
2 Jan. 2 Cash 249 6 0 0 00 2
DATE DEBIT CREDITDESCRIPTION
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
GENERAL JOURNAL
GENERAL JOURNAL
DESCRIPTIONDATE DEBIT CREDIT
EXERCISE 20.10
PAGE
POST.
REF.
1 May 1 Subscriptions Receivable—Common 1380000 1
12 12
13 June 1 Cash 690000 13
14 Subscriptions Receivable—Common 690000 14
15 Payment by Angelina Paz of balance 15
16 due on stock subscription 16
27 27
28 28
29 29
30 30
31 31
GENERAL JOURNAL
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.1A
Year
Case A
All dividends to Preferred 2013
All dividends to Preferred 2014
10% to Pref.—bal. to Common 2015
Case B
($20,000 in arrears to Preferred)
All dividends to Preferred 2014
($38,000 in arrears to Preferred)
10% preference plus $38,000 in 2015
arrears to Preferred—balance
to Common
Computation of 2015 dividend:
Arrearage from 2013 & 2014
2015 Preferred dividend
Totals
Analyze: $7,750 in total dividends should be paid to the stockholder for the fiscal year, 2015 (250 x $31.00)
12.00
$1.20$62,000 $31.00 $48,000
24,000
$38,000 $19.00
1.20110,000 62,000 31.00 48,000
− 0 −6,000 6,000 3.00 − 0 −
12.00 86,000
6,000 3.00 − 0 − − 0 −
110,000 24,000
$2.00 $ − 0 −
2.15
6,000
Preferred Stock Common Stock
$4,000 $4,000 $ − 0 −
Total
Dividends
Total Per Share Total Per Share
PROBLEM 20.2A
PART I
1. $13,500 to preferred for dividends in arrears for 2011 and 2012
2011 dividend ($75,000 × 0.09) $6,750
PART II
1. same calculation as #1 in Part I for total dividends paid to preferred
2. $20,250 ÷1,500 shares = $13.50 per share
PROBLEM 20.3A
PAGE
POST.
REF.
1 2013 1
12 Parts Inventory 39 2 0 0 00 12
13 Land 80 0 0 0 00 13
14 Building 477 8 0 0 00 14
15 Furniture and Equipment 89 5 0 0 00 15
16 Allowance for Doubtful Accounts 274000 16
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.4A
PAGE
POST.
REF.
1 2013 Cash 50 5 0 0 00 1
12 2 Cash 20 0 0 0 00 12
13 Preferred Stock 20 0 0 0 00 13
14 Issued 2,000 shares of preferred stock 14
15 ($10 par value) to Harriet Denzel 15
16 16
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.4A (continued)
Current Assets
Cash 23050000
Accounts Receivable 36200000
Current Liabilities
Accounts Payable 37500000
Accrued Expenses Payable 2080000
Total Current Liabilities 39580000
Analyze: The current ratio for the corporation is 3.21 to 1 ($1,269,900/$395,800).
Denzel Corporation
Liabilities and Stockholders’ Equity
Balance Sheet
January 2, 2013
Assets
PROBLEM 20.5A
PAGE
POST.
REF.
1 2013 1
12 12
13 3 Cash 101 15 0 0 0 00 13
14 Preferred Stock 311 15 0 0 0 00 14
15 Issued 150 shares of preferred stock to 15
16 Gloria Amos at $100 per share 16
27 Stock subscription from Joan Patterson for 27
28 200 shares of common stock at $105 per share 28
29 29
30 14 Subscriptions Receivable—Preferred Stock 115 540000 30
31 Preferred Stock Subscribed 312 500000 31
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.5A (continued)
PAGE
POST.
REF.
1 2013 1
12 30 Cash 101 10 5 0 0 00 12
13 Subscriptions Receivable—Common Stock 114 10 5 0 0 00 13
14 Full payment of Joan Patterson’s subscription 14
15 15
16 30 Common Stock Subscribed 302 2000000 16
GENERAL JOURNAL 2
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.5A (continued)
ACCOUNT Cash ACCOUNT NO.
2013
29 J2 2700 00 84100 00
30 J2 10 5 0 0 00 94 6 0 0 00
ACCOUNT Subscriptions Receivable—Common Stock
2013
ACCOUNT Subscriptions Receivable—Preferred Stock ACCOUNT NO.
2013
CREDIT
115
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
GENERAL LEDGER
101
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT
114
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
PROBLEM 20.5A (continued)
ACCOUNT Common Stock ACCOUNT NO.
2013
Mar. 1 J1 4000000 4000000
ACCOUNT Common Stock Subscribed ACCOUNT NO.
2013
ACCOUNT Paid-in Capital in Excess of Stated Value—Common ACCOUNT NO.
2013
ACCOUNT Preferred Stock ACCOUNT NO.
2013
GENERAL LEDGER
301
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
302
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
305
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
311
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
PROBLEM 20.5A (continued)
ACCOUNT Preferred Stock Subscribed ACCOUNT NO.
2013
ACCOUNT Paid-in Capital in Excess of Par Value—Preferred ACCOUNT NO.
Stockholders’ Equity
Preferred Stock ($8%, $100 par value, noncumulative,
nonparticipating, 30,000 shares authorized)
At Par Value (150 shares issued) 1500000
Subscribed (50 shares) 500000
Paid-in Capital in Excess of Par Value 4 0 0 00 2040000
Jaguar Corporation
Balance Sheet (Partial)
March 31, 2013
315
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
312
CREDIT
BALANCE
DEBIT CREDIT
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT
DEBIT CREDIT