978-1337276337 Test Bank Chapter 11 Part 5

Chapter 11

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198. Assume that on December 31, 2017, Ambridge Company has outstanding 8,000 shares of $15 par, 6% cumulative,

preferred stock and 40,000 shares of $5 par common stock. Ambridge was unable to declare a dividend in 2015 or 2016

1. How much cash is distributed to preferred stockholders?

2. How much cash is distributed to common stockholders?

3. What is the dividend per share to preferred stock?

4. What is the dividend per share to common stock?

2. $75,000 – $21,600 = $53,400

3. $21,600/8,000 = $2.70 per share

4. $53,400/40,000 = $1.335 per share

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199. Lakeview Company reported the following amounts on its balance sheet at December 1, 2017:

Preferred stock, $2 par, 3,000 shares issued and outstanding $ 6,000

Common stock, $10 par, 8%, 400 shares issued and outstanding 4,000

Additional paid-in capital—common 22,000

Total contributed capital $32,000

Retained earnings 48,000

Total stockholders’ equity $80,000

1. Declared a 20% stock dividend on common stock on December 3, when the stock was selling at $12 per share. The

2. Distributed the common stock dividend on December 20.

3. Approved a 2-for-1 stock split of the common stock on December 28, when the stock was selling for $20 per share.

1. How many common shares are outstanding at December 31, 2017?

2. What effect will the stock split have on the stock’s market value?

1.

Balance Sheet Income Statement

2.

Balance Sheet Income Statement

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201. The Stockholders’ Equity section of the balance sheet for High Five Design Company appeared as follows before its

recent stock dividend:

Common stock, $3 par, 100,000 shares issued and outstanding $300,000

Additional paid-in capital—common 150,000

Retained earnings 425,000

Total stockholders’ equity $875,000

High Five declared a 10% stock dividend when the market price per share was $7. In the space provided, write in the

amounts of each of the components of the Stockholders’ Equity section, after the stock dividend was distributed.

Common stock $________________________

Additional paid-in capital—common stock $________________________

Retained earnings $________________________

202. Assume that Wei Company’s Stockholders’ Equity category of the balance sheet appears as follows as of January 1,

2017:

1. Assume that on January 2, 2017, Wei declares a 10% stock dividend to common stockholders to be distributed on April

2. Instead of (1) above, assume that on January 2, 2017, Wei declares a 100% stock dividend to be distributed on April 1,

2017. Determine the impact on the accounting equation of the journal entry to be recorded by Wei.

3. Determine the impact on the accounting equation of the entry that would be made when the stock in (2) above is

actually distributed.

1.

Jan. 2

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204. Park Avenue Toys reported the following information at December 31, 2017:

Common stock, $3 par, 10,000 shares authorized $ 30,000

Additional paid-in capital—common 80,000

Retained earnings 40,000

Total contributed capital and retained earnings $150,000

Less: Treasury stock (5,000 common shares at cost) (10,000)

Total stockholders’ equity $140,000

1.

Would the book value per share increase, decrease, or remain the same, if the company declared a 3-for-1 stock split

2.

If cash dividends were declared on January 10, 2018, at $1 per share, by how much would retained earnings

decrease as a result? (Assume that the 3-for-1 stock split occurred.)

2. 30,000 shares × $1 = $30,000

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205. Marvin’s Shrimp Restaurant incorporated as a new business on January 1, 2017. The company is authorized to issue

40,000 shares of $1 par value common stock and 10,000 shares of 4%, $5 par value, cumulative, participating preferred

stock. On January 1, 2017, the company issued 15,000 shares of common stock for $8 per share. Net income for the year

ended December 31, 2017, was $115,000. Cash dividends in the amount of $30,000 were declared, but only $25,000 were

paid as of year-end. Prepare the Stockholders’ Equity section of the balance sheet for Marvin’s Shrimp Restaurant at

December 31, 2017.

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206. Use the comparative financial statements of Penny Company for the year ended December 31, 2017 to answer the

following question(s).

Penny Company

Statement of Stockholder’s Equity

For the Year Ended December 31, 2017

(in thousands, except share data)

Common Stock Retained Treasury Stock

Shares Amount Earnings Shares Amount Total

Balance, January 1, 2017 57,936,988 $ 89,861 $20,037 $109,898

Exercise of stock options

including tax benefit of $4,754

945,780

7,911

Sale of common stock 12,050,000 163,873 163,873

Stock subscription notes

repayments

3,671

Conversion of convertible

debentures, net

6,798

100

Sale of common stock under

employee stock purchase plan

17,424

263

Net earnings 26,102 26,102

Unrealized holding gains, net 141 141

Translation adjustment 272 272

Balance Dec. 31, 2016 70,956,990 $265,679 $46,552 0 $ 0 $312,231

See notes to consolidated financial statements.

Required

(1) What is the primary cause of the change in Penny’s stockholders’ equity from January 1, 2017, to December 31, 2017?

(2) Did Penny declare dividends during 2017? How do you know? Which items would be included as part of

comprehensive income, if any?

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208. On December 31, 2017, Aire Dyne, Inc. reported common stock of $120,000, retained earnings of $60,000, and total

stockholders’ equity equal to $500,000. No unusual accounts appeared in the Stockholders’ Equity section of its balance

sheet. During the fiscal year ended December 31, 2018, 10,000 shares of stock were sold for $40,000, of which $10,000

represented additional paid-in capital. The company reported net income of $85,000 and declared and paid dividends of

$50,000.

A) What is the par value of the stock?

B) What is the amount of the retained earnings at December 31, 2018?

C)

Prepare a statement of retained earnings for Aire Dyne, Inc. for the year ended December 31, 2018, in good form.

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209. The following Stockholders’ Equity section of Petal Pusher Company’s balance sheet appeared at December 31,

2017.

Common stock, $1 par value, 200,000 shares issued $ 200,000

Additional paid-in capital—common 800,000

Retained earnings 450,000

Total stockholders’ equity $1,450,000

Answer the following:

A) Has the company been profitable since its inception? How do you know?

B) What does the balance in retained earnings represent?

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210. Several transactions occurred for Shadow Dreams Corporation during 2017. Indicate the effect each item has directly

on retained earnings by writing the amount in the space provided. Place a + (plus sign) in front of the amount if the item

increases retained earnings, or ( ) parentheses around the amount if the item decreases retained earnings. Place an X in the

blank for items that have no direct effect on retained earnings. (Items that affect the income statement do not directly

affect retained earnings.)

A)

____ A tornado completely destroyed the company’s warehouse on March 1. The original cost was $300,000,

and the book value was $160,000 on that date. The company had no insurance on the warehouse.

B)

____ Shadow Dreams earned net income in the amount of $450,000 for the year ending December 31, 2017.

C)

____ Shadow Dreams declared and paid $320,000 of cash dividends to common and preferred stockholders

during 2017.

211. Assume the following independent situations:

1. Company A has total stockholders’ equity at year-end of $600,000 and 10,000 shares of stock.

2. Company B has total stockholders’ equity at year-end of $600,000 and 10,000 shares of stock. The company also has

60,000 shares of preferred stock, which has a $1 par value and a liquidation value of $3 per share.

Required

Calculate the book value per share for Company A and Company B.

2. Book value per share is $42, or ($600,000 – $180,000)/10,000.

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212. Heather Valley Company has the following amounts in the Stockholders’ Equity category of the balance sheet at

December 31, 2017:

Preferred stock, $100 par, 8%, noncumulative (liquidation value of $120 per share) $100,000

Paid-in capital—preferred 60,000

Common stock, $5 par 450,000

Paid-in capital—common 50,000

Retained earnings 225,000

Required

Determine the book value per share of the Heather Valley Company stock.

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213. Information taken from the accounting records of Airways, Inc., for the year ended December 31, 2017, appears in

the table below. In the space provided, indicate in which section of the statement of cash flows (investing or financing)

each item would be reported and whether the item is a cash inflow or outflow. If an item is neither an investing activity

nor a financing activity, place an X in the box.

Transaction Cash Flow

Section Inflow or

Outflow

a. Proceeds from sale of investment, $65,000

b. Proceeds from borrowing from the bank, $32,000

c. Dividends declared, $68,000

d. Repayments of long-term debt, $21,000

e. Preferred shares issued, $140,000

f. Preferred shares converted into common stock; the market value at time of exchange, $35,000

g. Dividends paid to shareholders, $43,000

h. Treasury stock purchases, $15,000

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214. [APPENDIX] Tony Venato opened Tony’s Best Brand Shop as a sole proprietorship by investing $10,000 on

January 1, 2017. During the first year, the business earned revenues of $520,000 and incurred expenses of $360,000. Tony

withdrew $50,000 for personal use. Prepare Tony’s statement of owner’s equity for the year ended December 31, 2017.

215. [APPENDIX] Chad Jones established Jones’ Cleaning Services, a sole proprietorship, by investing $1,000 on

January 1, 2017. During the first year of operations, the business generated net income of $42,000. The owner withdrew

cash for personal use. The ending balance of the capital account was $20,000. Prepare Jones’ statement of owner’s equity

for the year ended December 31, 2017.

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216. [APPENDIX] Derek and Kent are partners. At the beginning of the current year, Derek’s capital account is $30,000,

while Kent’s is $50,000. The partners decided to allocate income with 10% interest on capital balances at the beginning of

the period and divide the balance equally. Net income for the current year, 2017, is $80,000. Each partner withdrew

$15,000 for personal use during the year. Determine the amount of income that each partner will be allocated.

217. [APPENDIX] Fowler Company opened business as a sole proprietorship on January 1, 2017. The owner contributed

$525,000 cash on that date. During the year, the company had a net income of $20,000. The company purchased

equipment of $120,000 during the year. The owner also withdrew $75,000 to pay for personal expenses during 2017.

Required

Determine the company’s owner’s equity at December 31, 2017.