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    Tandem Corporation, Ricochet Corporation, Red Hot Foods, and Frazer Corporation

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    1. Tandem Corporation issued 200,000 shares of $2 par value capital
    stock at date of incorporation for cash at a price of $7 per share.
    During the first year of operations, the company earned $80,000 and
    declared a dividend of $25,000. At the end of this first year of
    operations, the balance of the Common Stock account is:
    a. $1,400,000.
    b. $1,480,000.
    c. $400,000.
    d. $1,455,000.
    Use the following to answer questions 9-10:
    On January 1, 2000, Ricochet Corporation issued 100,000 shares of
    its total 500,000 authorized shares of $5 par value common stock for
    $7 per share. On December 31, 2000, Ricochet Corporation's
    common stock is trading at $10 per share.
    2. Refer to the above data. Assuming Ricochet Corporation did not
    issue any more common stock in 2000, how does the increase in
    value of its outstanding stock affect Ricochet?
    a. Ricochet should recognize additional net income for 2000 of $3
    per share, or $300,000.
    b. Paid-in capital at December 31, 2000, is $1,000,000 (i.e. 100,000
    shares times $10 per share).
    c. This increase in market value of outstanding stock is not
    recorded in the financial statements of Ricochet Corporation.
    d. Each shareholder must pay an additional $3 per share to
    3. Refer to the above data. Assume Ricochet Corporation decides to
    issue an additional 10,000 shares of its common stock on December
    31, 2000. How will the above increase in value affect Ricochet?
    a. Ricochet can issue the 10,000 shares at a higher price than the
    initial 100,000 shares.
    b. Ricochet can sell the 10,000 shares for $10 each, as well as
    collect an additional $3 per share for each of the 100,000 shares
    sold initially.
    c. Ricochet reports a gain of $3 per share on all stock sold during
    the year.
    d. Paid-in capital at the end of 2000 will be $1,100,000 (i.e.,
    110,000 shares times $10 per share).
    4. Red Hot Foods suffered a $2,000,000 loss (net of tax) when the FDA
    prohibited the sale of food products containing red dye no. 3. On its
    other products, Red Hot Foods had net sales of $7,080,000 and costs
    and other expenses of $7,005,000. Which of the following statements
    is not true?
    a. Red Hot Foods reports a net loss of $1,925,000 for the current
    b. Red Hot Foods reports income before extraordinary items of
    c. Red Hot Foods combines the $2,000,000 loss with its other costs
    and expenses of $7,005,000, since this item does not qualify for
    any special disclosure.
    d. Red Hot Foods shows the $2 million loss in a separate section of
    the income statement as an extraordinary item.
    Use the following to answer questions 18-22:
    The stockholders' equity section of the balance sheet of Frazer
    Corporation at December 31, 2001, appears as follows:
    Stockholders' equity:
    $5 preferred stock, $100 par, callable at $115,
    10,000 shares authorized, 8,000 shares issue $800,000
    Common stock, $2 par, 100,000 shares authorized,
    60,000 shares issued, of which 6,000 are held
    in treasury 120,000
    Additional paid-in capital:
    From issuance of preferred stock 80,000
    From issuance of common stock 300,000
    From treasury stock transactions 3,000
    From common stock dividends 50,000
    Total paid-in capital $1,353,000
    Retained earnings ($48,000 equal to cost of
    treasury stock is not available for dividends) 340,000
    Less: Treasury stock (at cost: 6,000 common shares) 48,000)
    Total stockholders' equity $1,645,000
    5. Refer to the above data. What was the average issue price per share
    of preferred stock?
    a. $88
    b. $100
    c. $110
    d. $108
    6. Refer to the above data. How many shares of common stock are
    a. 60,000
    b. 54,000
    c. 100,000
    d. 48,000
    7. Refer to the above data. A small stock dividend of 5,000 shares was
    declared and distributed during 2001. What was the market price
    per share on the date of declaration?
    a. $12 per share
    b. $10 per share
    c. $2 per share
    d. $8 per share
    8. A statement of cash flows would be least useful in answering which
    of the following questions?
    a. What was the average balance in the Cash account during the
    b. Did operating activities result in a positive or negative net cash
    c. How much cash was provided or used by financing activities
    during the period?
    d. Were cash dividends paid by the company more or less than the
    net cash flow from operations?
    9. The principal purpose of a statement of cash flows is which of the
    a. To measure the profitability of a business that maintains its
    accounting records on the cash basis.
    b. To show the average amount of cash in the register.
    c. To provide information about the cash receipts and cash
    payments of a business entity during an accounting period.
    d. To show the amount of revenue.

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    Solution Preview

    1 c. the common stock account is not affected by the share premium or the retained earnings. These are usually shown separately.
    2. c The increases in the price of the stock is not reflected in the books.
    3. a. the issue price can be higher than the previous but it may not be $3, usually it is lower than $3.
    4. c. if Red Hot foods combines ...

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