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This paperwork of ACC 227 Week 7 Discussion Question 1
comprises: Complete Exercise 11-24 on p. 407.
When you respond to your classmates
Business - Accounting
E15-13 (a,b) (Stock Split and Stock Dividend)
The common stock of Warner Inc. is currently selling at $110
per share. The directors wish to reduce the share price and
increase share volume prior to a new issue. The per share par
value is $10; book value is $70 per share. Five million shares
are issued and outstanding.
(a) How much is the debit to retained earnings if the board
votes a 2-for-1 stock split?
(b) Prepare the necessary journal entries if the board votes a
100% stock dividend.
P15-1 (Equity Transactions and Statement Preparation)
On January 5, 2010, Phelps Corporation received a charter
granting the right to issue 5,000 shares of $100 par value, 8%
cumulative and nonparticipating preferred stock, and 50,000
shares of $10 par value common stock. It then completed
these transactions.
Jan. 11 Issued 20,000 shares of common stock at $16 per
share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred
stock for the following assets: machinery with a fair market
value of $50,000; a factory building with a fair market value
of $160,000; and land with an appraised value of $270,000.
July 29 Purchased 1,800 shares of common stock at $17 per

2. share. (Use cost method.)
Aug. 10 Sold the 1,800 treasury shares at $14 per share.
Dec. 31 Declared a $0.25 per share cash dividend on the
common stock and declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a
$175,700 net income.
Instructions
(a) Record the journal entries for the transactions listed
above.
(b) Prepare the stockholders’ equity section of Phelps
Corporation’s balance sheet as of December 31,
2010.
E16-20 (EPS: Simple Capital Structure) On January 1, 2010,
Bailey Industries had stock outstanding as follows.
6% Cumulative preferred stock, $100 par value,
issued and outstanding 10,000 shares $1,000,000
Common stock, $10 par value, issued and
outstanding 200,000 shares 2,000,000
To acquire the net assets of three smaller companies, Bailey
authorized the issuance of an additional
170,000 common shares. The acquisitions took place as
shown below.
Date of Acquisition Shares Issued
Company A April 1, 2010 60,000
Company B July 1, 2010 80,000
Company C October 1, 2010 30,000
On May 14, 2010, Bailey realized a $90,000 (before taxes)
insurance gain on the expropriation of
investments originally purchased in 2000.
On December 31, 2010, Bailey recorded net income of
$300,000 before tax and exclusive of the gain.

3. Instructions
Assuming a 40% tax rate, compute the earnings per share
data that should appear on the financial statements
of Bailey Industries as of December 31, 2010. Assume that
the expropriation is extraordinary.
P16-7 (Computation of Basic and Diluted EPS) Charles Austin
of the controller’s office of Thompson Corporation was given
the assignment of determining the basic and diluted earnings
per share values for the year ending December 31, 2011.
Austin has compiled the information listed below.
1. The company is authorized to issue 8,000,000 shares of
$10 par value common stock. As of
December 31, 2010, 2,000,000 shares had been issued and
were outstanding.
2. The per share market prices of the common stock on
selected dates were as follows.
Price per Share
July 1, 2010 $20.00
January 1, 2011 21.00
April 1, 2011 25.00
July 1, 2011 11.00
August 1, 2011 10.50
November 1, 2011 9.00
December 31, 2011 10.00
3. A total of 700,000 shares of an authorized 1,200,000
shares of convertible preferred stock had been
issued on July 1, 2010. The stock was issued at its par value of
$25, and it has a cumulative dividend
of $3 per share. The stock is convertible into common stock
at the rate of one share of convertible
preferred for one share of common. The rate of conversion is

4. to be automatically adjusted
for stock splits and stock dividends. Dividends are paid
quarterly on September 30, December 31,
March 31, and June 30.
and so on..
Instructions
(a) Determine the number of shares used to compute basic
earnings per share for the year ended
December 31, 2011.
(b) Determine the number of shares used to compute diluted
earnings per share for the year ended
December 31, 2011.
(c) Compute the adjusted net income to be used as the
numerator in the basic earnings per share
calculation for the year ended December 31, 2011.
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