Before after action After Dividend Stock Split
Stockholders equity paid in capital
Common stock, $10 par 600,000 630,000 600,000
Paid in capital in excess par value 0 12,000 0
Total paid in capital 600,000 642,000 600,000
Return earnings 900,000 858,000 900,000
Total stock holders equity 1,500,000 1,500,000 1,500,000
Outstanding shares 60,000 66,000 120,000

E12-1

1. Stock securities, or purchases made in debt, are executed by companies in order to obtain surplus cash holdings to bolster income margins and create flexibility into the future for strategic advantages. 2. Seasonal fluctuations or economic cycle would be the culprit. 3. The investment of cash over short periods of time would best be used on low-risk, high liquidity, and short-term securities. An example of this would be government-issued securities. 4. Debt securities and stock securities. 5. They are postulating a potential value increase in the organization’s investment.

E12-2
Jan. 1
Dr Debt investments $50,900
Cr Cash $50,900

July 1
Dr Cash $2,000
Cr Interest revenue $2,000 ($50,000 x 8% x 6/12)

July 1
Dr Cash $33,500
Cr Debt investments $30,540 ($50,900 x 30/50)
Cr Gain on sale of debt investments $2,960

Prepare the adjusting entry for the accrual of interest at December 31.
Dec. 31
Dr Interest receivable $800 ($20,000 x 8% x 6/12)
Cr Interest revenue