Chapter 11 Corporations: Organization, Stock Transactions, and Dividends
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3. Prepare a retained earnings statement for the year ended December 31, 2014. 4. Prepare the Stockholders’ Equity section of the December 31, 2014, balance sheet.
PR 11-5B Entries for selected corporate transactions
OBJ. 2, 3, 4, 6
West Yellowstone Outfitters Corporation manufactures and distributes leisure clothing. Selected transactions completed by West Yellowstone Outfitters during the current fiscal
year are as follows: Jan. 15. Split the common stock 4 for 1 and reduced the par from 120 to 30 per
share. After the split, there were 800,000 common shares outstanding. Mar. 1. Declared semiannual dividends of 0.25 on 100,000 shares of preferred stock
and 0.07 on the 800,000 shares of 30 par common stock to stockholders of record on March 31, payable on April 30.
Apr. 30. Paid the cash dividends. May 31. Purchased 60,000 shares of the corporation’s own common stock at 32,
recording the stock at cost. Aug. 17. Sold 40,000 shares of treasury stock at 38, receiving cash.
Sept. 1. Declared semiannual dividends of 0.25 on the preferred stock and 0.09 on the common stock before the stock dividend. In addition, a 1 common
stock dividend was declared on the common stock outstanding, to be capital- ized at the fair market value of the common stock, which is estimated at 40.
Oct. 31. Paid the cash dividends and issued the certificates for the common stock dividend.
Instructions
Journalize the transactions.
Cases Projects
CP 11-1 Board of directors’ actions
Bernie Ebbers, the CEO of
WorldCom
, a major telecommunications company, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom stock as se-
curity for some personal loans. As the price of WorldCom stock sank, Ebbers’ bankers threatened to sell his stock in order to protect their loans. To avoid having his stock sold,
Ebbers asked the board of directors of WorldCom to loan him nearly 400 million of corporate assets at 2.5 interest to pay off his bankers. The board agreed to lend him
the money.
Comment on the decision of the board of directors in this situation. CP 11-2
Ethics and professional conduct in business
Lou Hoskins and Shirley Crothers are organizing Red Lodge Metals Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Lou and Shirley tentatively plan to
request authorization for 400,000,000 shares of common stock to be sold to the general public. Lou and Shirley have decided to establish par of 0.03 per share in order to ap-
peal to a wide variety of potential investors. Lou and Shirley feel that investors would be more willing to invest in the company if they received a large quantity of shares for what
might appear to be a “bargain” price.
Discuss whether Lou and Shirley are behaving in a professional manner. CP 11-3
Issuing stock
Epstein Engineering Inc. began operations on January 5, 2014, with the issuance of 500,000 shares of 80 par common stock. The sole stockholders of Epstein Engineer-
ing Inc. are Barb Abrams and Dr. Amber Epstein, who organized Epstein Engineering Inc. with the objective of developing a new flu vaccine. Dr. Epstein claims that the flu
vaccine, which is nearing the final development stage, will protect individuals against
Sept. 1, Cash dividends, 95,200
Continued
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Chapter 11 Corporations: Organization, Stock Transactions, and Dividends
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