Homework SourseThe stockholders equity section of Ben Cos December 31 20X5
| The stockholders\' equity section of Ben Co.\'s December 31, 20X5 balance sheet consisted of the following: | |
| Common stock, $20 par, 40,000 shares authorized and outstanding | $800,000 |
| Additional paid-in capital | 360,000 |
| Retained earnings (deficit) | (320,000) |
| On January 2, 20X6, Ben put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to $10 and eliminating the deficit against additional paid-in capital. Immediately after the quasi-reorganization, what amount should Ben report as additional paid-in capital? | |
| A. | $80,000 |
| B. | $360,000 |
| C. | $320,000 |
| D. | $440,000 |
| 7 | |
| Installment sales | $1,500,000 |
| Regular sales | 700,000 |
| Cost of installment sales | 900,000 |
| Cost of regular sales | 300,000 |
| General and administrative expenses | 100,000 |
| Collections on installment sales | 400,000 |
| The deferred gross profit account in Lane\'s December 31, 20X5 balance sheet should be | |
| A. | $440,000 |
| B. | $1,100,000 |
| C. | $550,000 |
| D. | $400,000 |
| The stockholders\' equity section of Ben Co.\'s December 31, 20X5 balance sheet consisted of the following: | |
| Common stock, $20 par, 40,000 shares authorized and outstanding | $800,000 |
| Additional paid-in capital | 360,000 |
| Retained earnings (deficit) | (320,000) |
| On January 2, 20X6, Ben put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to $10 and eliminating the deficit against additional paid-in capital. Immediately after the quasi-reorganization, what amount should Ben report as additional paid-in capital? | |
| A. | $80,000 |
| B. | $360,000 |
| C. | $320,000 |
| D. | $440,000 |
| 7 | |
| Installment sales | $1,500,000 |
| Regular sales | 700,000 |
| Cost of installment sales | 900,000 |
| Cost of regular sales | 300,000 |
| General and administrative expenses | 100,000 |
| Collections on installment sales | 400,000 |
| The deferred gross profit account in Lane\'s December 31, 20X5 balance sheet should be | |
| A. | $440,000 |
| B. | $1,100,000 |
| C. | $550,000 |
| D. | $400,000 |
Solution
For the problem one correct answer would be
c. $320,000
explained as
The common stock which are to be converted in to additional paid-in capital is
(common stock per value - par value of stock reduced) * no of shares outstanding
= ($ 20 - $10) * 40000 shares
= $10 * 40000 shares
= $400,000
The additional paidin capital was increased by $80,000 ($400,000- $320,000) as a result of reorganisation
Therefore in net effect $320,000 ($400,000-$80,000)
2. correct answer would be
A. $440,000
Sales $1,500,000
cost of goods sold $400,000
DGP ($1,500,000-$400,000) = $1,100,000
DGP % = ($1,500,000 - $ 900,000)/$1,500,000
= 40%
DGP (40% * $1,100,000)
= $440,000
DGP means Deferred gross profit
Deferred gross profit remaining on uncollected sales accounted for under the instalment method
The GP % on sales collection only is 40%
the uncollected istalment sales amount = $1,100,000
DGP = 40%of $1,100,000
