Preferred stock

The property costs IPPP,OOH 3 years ago and was carried on the promoters' books at Pl 50,000. Jan. 31 Issued 30,000 shares of convertible preferred stock at Pl 50 per share. Each share can be converted to five shares of common stock. The corporation paid IPPP,OOH to an agent for selling the shares. Feb.. 15 Sold 9,000 shares of common stock at IPPP per share. The corporation paid issue costs of p 75,000. May 30 Received subscriptions for 12,000 shares of common stock at IPPP per share. Gag. 30 Issued 2,1 00 shares of common stock and 4,200 shares of preferred stock in exchanged for a building with a fair market value Of Pl , 530,000.The building was originally purchased for Pl , 140,000 by the investors and has a book value of IPPP,OOH. In addition, 1,800 shares of common stock were sold for IPPP,ooh cash. Novo. 15 Payments in full for half of the subscriptions and partial payments for the rest of the subscriptions were received. Total cash received was Shares of stock were issued fo r the fully paid subscriptions. Deck. Declared a cash dividend of Pl O per share on preferred stock, payable on December 31 to stockholders of record on December 1 5, and PEP per share cash dividend on common stock, payable on January 15, 2006 to stockholders f record on December 15.Deck. 31 Paid the preferred stock dividend. Net income for the first year of operations was Pl QUESTIONS: Based on the above and the result of your audit, determine the following as of December 31, 2005: 1 . Common stock a. IPPP,ooh p 144, 000 c. IPPP,ooh 2. Paid-in capital in excess of par value of preferred stock a. P 1 b. Pl 275,000 d. Pl 86,000 AP-5901 Q Page 2 of 5 Paid-in capital in excess of par value of common stock 3. A. PA,21 1,000 4. Retained earnings d. IPPP,ooh 5. Total stockholders' equity SUGGESTED ANSWERS: C, C, C, D, B PROBLEM NO. 2The Perseverance Corporation has requested you to audit its financial statements for the year 2005. During your audit, Perseverance presented to you its balan ce sheet as of December 31 , 2004 containing the following capital section: Preferred stock POI par; 60,000 shares authorized and issued, of which 6,000 are treasury shares costing PEP,OOH and shown as an asset Common stock, par value PA; 600,000 shares authorized, of which 450,000 are issued and outstanding Additional paid in capital (PA per share on preferred stock issued in 2000) Allowance for doubtful accounts receivable Reserve for depreciationReserve for fire insurance Retained earnings IPPP,ooh 300,000 12,000 840,000 198,000 Additional information: Of the preferred stock, 3,000 shares were sold for P 18 per share on August 30, 2005. Perseverance credited the proceeds to the Preferred Stock account. The treasury shares as of December 31, 2004 were acquired in one purchase in 2004. 2) The preferred stock carries an annual dividend of Pl per share. The dividend is cumulative. As of December 31, 2004, unpaid cumulative dividends amounted to AS per share. The entire accumulation w as liquidated in June, 2005, by issuing to the preferred stockholders 54,000 shares of common tock. ) A cash dividend of Pl per share was declared on December 1, 2005 to preferred stockholders Of record December 1 5, 2005. The dividend is payable on January 15, 2006. 4) At December 31, 2005, the Allowance for Doubtful Accounts Receivable and Reserve for Depreciation had balances of PEP,ooh and Pl respectively. 5) On March 1, 2005, the Reserve for Fire Insurance was increased by PEP,OOH; Retained Earnings was debited. 6) On December 31, 2005, the Reserve for Fire Insurance was decreased by PEP,000, which represents the carrying value of a machine destroyed by fire n that date.