Question

The stockholders' equity section of Ben Co.'s December 31, 20X5 balance sheet consisted of the following:...

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
Business   Accounting   
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Homework Answers

Answer #1

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

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