FINANCE

Hatch Company has two classes of capital stock outstanding:  8%, $20 par preferred and $5 par common.  At December 31, 2010, the following accounts were included in stockholders’ equity.

 

 

Preferred Stock, 150,000 shares                    3,000,000

Common Stock, 2,000,000 shares               10,000,000

Paid-in Capital in Excess of Par—Preferred       200,000

Paid-in Capital in Excess of Par—Common   27,000,000

Retained Earnings                                    4,500,000

 

 

The following transactions affected stockholders’ equity during 2011.

 

Jan. 1    30,000 shares of preferred stock issued at $22 per share

 

Feb. 1    50,000 shares of common stock issued at $20 per share

 

June 1    2-for-1 stock split (par value reduced to $2.50)

 

July 1     30,000 shares of common treasury stock purchased at $10 per share Hatch uses the cost method

 

Sept. 15   10,000 shares of treasury stock reissued at $11 per share

 

Dec. 31    The preferred dividend is declared, and a common dividend of 50¢ per share is declared.

 

Dec. 31     Net income is $2,100,000.

 

 

 

 

Required:

 

Prepare the stockholders’ equity section for Hatch Company at December 31, 2010. Show all supporting computations.

1.  How are liabilities classified on the balance sheet?

 

paid and unpaid

current and long-term

definitely determinable and estimated

current and unfunded

 

2.  Definitely determinable liabilities are ________.

 

always current liabilities

obligations of an exact amount

obligations of an uncertain amount

always long-term liabilities

 

3.  Beau Brentley earned $60,000 from his job at Bridgestone Tires. He had 15% of his gross pay withheld for federal income taxes, 6.2% withheld for FICA Social Security taxes, and 1.45% withheld for Medicare taxes. What was Beau’s net pay?

 

$48,000

$46,410

$48,200

$60,000

 

4.  Brook’s Bike Company sold 80 mountain bikes during May. The company offered a one-year warranty. Future warranty expense was estimated to be $25 per bike. During May, the company spent $115 on parts and labor to repair three bikes that were under warranty. The warranty expense for May was ________.

 

$115

$2,115

$2,000

$345

 

5.  When companies borrow money for longer than one year, that obligation is called ________.

 

a long-term liability

equity financing

a current liability

an operating activity

 

6.  On January 1, 2011, Climax Corporation signed a $10,000,000, 6%, 10-year mortgage note to finance the construction of its new hotel in Cancun. The note will be repaid in 10 equal annual installments of $1,358,679. Over the 10-year period, as each installment payment is made, the portion of the payment that is used to reduce the principal will ________.

 

decrease

stay the same

increase

The answer cannot be determined from the information given.

 

7.  On January 1, 2011, Ajax Corporation signed a $1,000,000, 7%, 10-year mortgage note to buy a new warehouse. The note will be repaid in 10 equal annual installments of $142,378. The first payment was made on December 31, 2011. How much of the first mortgage payment will be used to reduce the principal?

 

$72,378

$132,412

$142,378

$0

 

8.  A bond is ________.

 

long-term debt until the year it matures

debt sold to investors

an agreement, which requires a company to repay principal plus interest

all of these

 

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