Income and loss in relation to initial investments

Question 1.

Kramer and Knox began a partnership by investing $60,000 and $80,000, respectively. During its first year, the partnership earened $160,000. Prepare calculations showing how the $160,000 income should de allocated to the partners under each of the following three separete plans for sharing income and loss: (1) the partners failed to agree on a method to share income ; (2) the partners agreed to share income and loss in proportion to their initial investments; and (3) the partners agreed to share income by granting a $50,000 per year salary allowance to Kramer, a $40,000 per year salary allowance to Knox, 10% interest on thir initial capital investments, and the remaining balance shared equally.

Note: Income allocation in a partnership.

Plan 3, Kramer , $84,000

Question2.

Prepare journal entries to record the following four separate issuances of stock.

a. 2000 shares of no-per common stock are issued to the corporation’s promoters in exchanges for their efforts, estimated to be worth $40,000. The stock has no stated value.

b. 2000 shares of no-per common stock are issued to the corporation’s promoters in exchanges for their efforts, estimated to be worth $40,000. The stock has a $1 per share stated value.

c. 4000 shares of $5 par value common stock are issued for $35,000 cash.

d. 1000 shares of $50 per value preferred stock are issued for $60,000 cash.

Question3.

The stockholders equity of TVX company at the beginning of the day on February 5 follows.

Common stock – $10 par value, 150,000 shares

Authorized, 60,000 shares issued and outstanding ………… $600,000

Paid-in capital in excess of par value, common stock ……………    425,000

Retained earnings       ……………………………………………………………    550,000

Total stockholders’ equity    ……………………………………                 $1,575,000

on February 5, the directors declare a 20% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is $40 per share on February 5 before the stock dividend. The stock’s market value is $33.40 per share on February 28.

1. Prepare entries to record both the dividend declaration and its distribution

2. one stockholder owned 800 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholders shares immediately before and after the stock dividend of February 5.

3. compute the total market value of the investor’s shares in part 2 as of February 5 and February 28.

Question 4.

Kohler Corporation reports the following components of stock holders’ equity on December 31, 2008.

Common stock – $10par value, 100,00 shares authorized,

40,000 shares issued and outstanding ………………………………….. $400,000

Paid-in capital in excess of par value, common stock                     $60,000

Retained earnings   ………………………………………………………………..   $270,000

Total stockholders’ equity ………………………………..                           $730,000

In year 2009, the following transactions affected its stockholders, equity accounts.

Jan. 1 purchased 4,000 shares of its own stock at $20 cash per share .

Jan. 5 Directors declared a $2 per share cash dividend payable on Feb. 28 to the Feb. 5 stockholders of record.

Feb. 28    Paid the dividend declared on January 5.

July 6   sold 1,500 of its treasury shares at $24 cash per share.

Aug 22   Sold 2,500 of its treasury shares at $17 cash per share.

Sept. 5 Directors declared a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record.

Oct. 28 Paid the dividend declared on September 5.

Dec. 31 closed the $388,000 credit balance ( from net income ) in the income summery account to Retained Earnings.

Required

1. Prepare journal entries to record each of these transactions for 2009

2. Prepare a statement of retained earnings for the year ended December 31, 2009.

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2009.