1. An investment company purchased for investment $100,000 of 6% 10-year municipal debentures at 96, and $200,000 of 5% industrial bonds, 15 years to run, at 104.
How would you treat the discount and the premium in the accounts? Give the journal entries.
2. The authorized capital stock of a corporation is $500,000, divided into 5,000 shares, par value $100. Of this amount $400,000 has been subscribed and paid for in full. The corporation purchases ten shares of a dissatisfied stockholder for $75 a share, and five other stockholders each donate five shares to the company. Five shares of the purchased stock and all of the donated stock are sold for $50 a share.
(a) Draft proper entries and show the ledger accounts and balances.
(b) How would the balances of the accounts in (a) appear in a balance sheet?
(c) Give the entries and show the ledger accounts and balances if the capital stock were of no specified par value, but 5,000 shares had been issued at $80 and the other conditions remain as stated in the first paragraph.
(d) How would the balances of the accounts in (c) appear in a balance sheet?
3. J. B. Brown and L. C. Smith are partners, and in order to raise more capital and to preserve the organization they decide to incorporate. A company was duly incorporated under the name of The Eclipse Company, with an authorized capital of $800,000 divided into 8,000 shares of the par value of $100 each.
The partners agreed to sell for the sum of $800,000, payable in capital stock of the corporation at par, all rights to and title in the net assets of the partnership, exclusive of the cash, which was divided between the partners in proportion to their several interests at the time of the sale of the property.
According to the articles of partnership, Brown and Smith were equally interested in the assets, but the profits and losses were on a basis of 60% and 40% respectively.