Question

Thurston Howell IV is the sole heir to the Howell Enterprise fortune. He does not participate in the business, preferring to tend to his comic book collection. He does however own a large piece of the company.

Recently he had become concerned about how the company has performed specifically related to some transactions relating to stockholders’ equity.

Here is the data relating to stockholders’ equity:

Howell Enterprises

Stockholders’ Equity

As of December 31, 2019

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

Retained Earnings                                                                          7,500,000

Total Stockholders Equity                                                              17,500,000

Thurston currently owns 300,000 shares of Howell Enterprises

Here are the relevant transactions for 2020:

1. The company issued 500,000 shares @ $8.00 per share
2. The company purchased 100,000 shares @ $15 per share
3. The company declared a $2.50 per share cash dividend
4. The company declared a 2:1 stock split

Required

1. Calculate the book value per share as of December 31, 2019. (total equity / number of shares outstanding)
2. Calculate the total value of Thurston Howell IV’s stock as of December 31, 2019. (his shares x book value per share)
3. Calculate the percentage of the company that Mr. Howell owns as of December 31, 2019. (his shares / total number of shares outstanding)
4. Prepare journal entries for the transactions listed above
5. Calculate the ending balances in the equity accounts
6. Calculate the book value per share after the transactions have been recorded
7. Calculate the total value of Thurston Howell IV’s stock after the transactions have been recorded. (his shares x new book value per share)
8. Calculate the percentage of the company that Mr. Howell owns after the transactions have been recorded. (his shares x new total outstanding shares).
9. Calculate the amount of loss that Mr. Howell has suffered (if any) as a result of the above transactions. (compare #2 to # 7).
10. Write a summary in Word explaining your results. Which transactions caused Mr. Howell to lose money?

Record the transactions for 2020 and calculate the ending balances in all of the stockholders equity accounts.

Trans	Accounts	Debit	Credit

Ending Balances
Common Stock
Retained Earnings
Treasury Stock
Total Equity
# of Shares Outstanding
Book Value Per Share

Mr. Howell’s Investment

	Before Transactions	After Transactions
Book Value Per Share
Total Value of Stock
% of Company Owned

Turn in the summary with this page

Bonds Problem

Hartz Corporation had the following transactions relating to borrowings during 2020:

• Hartz issued $2,000,000 in ten-year 5% bonds when the price was 98 (Bond A). Interest is paid once a year.
• Hartz issued $2,000,000 in ten-year 5% bonds when the price was 102. (Bond B). Interest is paid once a year.
• Hartz issued $2,000,000 in ten -year 5% bonds that were issued at par (100) (Bond C). Interest is paid once a year

Required

• Calculate the amount of money received when the bonds were issued for each bond.
• Calculate the amount of cash paid on the interest date for each bond.
• Calculate the amount of interest expense for each bond.

	Bond A	Bond B	Bond C
Proceeds From Issuing Bond
Cash Paid on Interest Date
Interest Expense on Interest Date

Answer 1

Howell Enterprises
Stockholders’ Equity
As of December 31, 2019
	no of shares	value in $	value per share
Common Stock, 2,000,000 shares outstanding  @ $5/share	2000000	10000000	5
additional issue	500000	2500000	5
Treasury stock 100,000 shares @$15 per share	-100000	-500000	5
	2400000	12000000	5
stock split 2:1	4800000	12000000	2.5
Retained Earnings	7500000
less: dividend declared @2.5 per share for 2400000 shares	-6000000	1500000
Total Stockholders Equity	4800000	13500000	2.81
book value per share		2.81
Thurston Howell IV share holdings before share split:	300000	15,00,000
total shares before split		10000000
percentage of holding before split		15%
Thurston Howell IV share holdings after share split:	600000	1500000
total shares after split	4800000	12000000
percentage of holding after split		13%