Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
Retained Earnings
200,000
Treasury Stock (cost – $12 per share)
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–06 – LO: 12–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:31 PM
DATE MODIFIED:
10/16/2017 6:21 PM
208. Firefly, Inc. reported the following results for the year ending July 31:
Retained earnings, August 1
$875,000
Net income
450,000
Cash dividends declared
140,000
Stock dividends declared
60,000
Prepare a retained earnings statement for the fiscal year ended July 31.
ANSWER:
Firefly, Inc.
Retained Earnings Statement
For the Year Ended July 31
Retained earnings, May 1
$ 875,000
Net income
$ 450,000
Dividends
(200,000)
Change in retained earnings
250,000
Retained earnings, April 30
$1,125,000
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–06 – LO: 12–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:31 PM
DATE MODIFIED:
10/16/2017 6:21 PM
209. The Torre Company has the following account balances in stockholders’ equity on December 31.
Common Stock – $5 par, 60,000 shares issued
$300,000
Paid-In Capital in Excess of Par—Common Stock
600,000
Preferred Stock – $100 par, 5,000 shares issued
500,000
Paid-In Capital in Excess of Par—Preferred
100,000
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Page 91
2. What was the average market price per share at which common stock was issued?
3. What was the average market price per share at which preferred stock was issued?
4. What is the total value of the paid-in capital portion of stockholders’ equity?
5. What is the total value of stockholders’ equity?
6. How many shares of common stock are outstanding?
7. If net income for the year was $75,000 and a preferred stock dividend of $20,000 was paid,
what was the beginning value of retained earnings? How much is earnings per share for
the year?
ANSWER:
1. 5,000 shares ($60,000/$12)
2. $15 per share ($900,000/60,000)
3. $120 per share ($600,000/5,000)
4. $1,500,000 paid-in capital ($300,000 + $600,000 + $500,000 + $100,000)
5. $1,640,000 total stockholders’ equity ($1,500,000 + $200,000 – $60,000)
6. 55,000 shares of common stock outstanding (60,000 – 5,000 shares of treasury
stock)
7. $145,000 beginning retained earnings ($200,000 + $20,000 – $75,000) $1 earnings
per share [($75,000 – $20,000)/55,000]
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Challenging
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–02 – LO: 12–02
FNMN.WAJO.19.12–05 – LO: 12–05
FNMN.WAJO.19.12–06 – LO: 12–06
FNMN.WAJO.19.12–07 – LO: 12–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:31 PM
DATE MODIFIED:
10/16/2017 6:21 PM
210. Marcos Company, which had 35,000 shares of common stock outstanding, declared a 4-for-1 stock split.
(a)
What will be the number of shares outstanding after the split?
(b)
If the common stock had a market price of $280 per share before the stock
split, what would be an approximate market price per share after the split?
ANSWER:
(a) 140,000 shares (35,000 × 4)
(b) $70 per share ($280/4)
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
a.
May 10: $21,000; May 15: $116,000
b.
May 10: $3,000; May 15: $30,000
c.
May 10: $18,000; May 15: $86,000
d.
May 10: $15,000; May 15: $56,000
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–02 – LO: 12–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
9/28/2017 2:36 PM
DATE MODIFIED:
10/16/2017 6:21 PM
215. On May 1, 10,000 shares of $10 par common stock were issued at $30, and on May 7, 5,000 shares of $50 par
preferred stock were issued at $111. What is the amount of the debit to Cash on May 1 and May 7?
a.
May 1: $555,000 May 7: $305,000
b.
May 1: $100,000; May 7: $250,000
c.
May 1: $200,000; May 7: $305,000
d.
May 1: $300,000; May 7: $555,000
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–02 – LO: 12–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
9/28/2017 2:42 PM
DATE MODIFIED:
10/16/2017 6:21 PM
216. Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. Journalize the transaction.
ANSWER:
Cash
14,000
Common Stock
10,000
Paid-In– Capital in Excess of Par—Common Stock
4,000
RATIONALE:
Total cash raised through the issue of shares = 1,000 × $14 = $14,000; Par
value of common stock issued = Number of shares issued × Par value of each
share = 1,000 × $10 = $10,000; Paid-In Capital in Excess of Par—Common
Stock = $14,000 – $10,000 = $4,000
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Page 96
219. At December 31, Idaho Company had the following ending account balances:
Retained Earnings: $250,000
Preferred Stock ($100 par, 7% cumulative, 10,000 authorized, 5,000 issued and outstanding): $500,000
Treasury Stock: $40,000
Paid-In Capital in Excess of Par—Common Stock: $625,000
Paid-In Capital in Excess of Par—Preferred Stock: $50,000
Common Stock ($5 par value, 500,000 shares authorized, 105,000 issued): $525,000
What is the total amount of paid-in capital that would be reported on the statement of stockholders’ equity at December
31?
a.
$1,150,000
b.
$1,700,000
c.
$1,950,000
d.
$1,910,000
ANSWER:
b
RATIONALE:
Paid in capital:
Preferred 7% stock, $100 par (10,000 shares
authorized, 5,000 shares issued)
$500,000
Excess of issue price over par
50,000
Paid-in capital, preferred stock
$550,000
Common stock, $5 par (500,000 shares
authorized, 105,000 issued)
$525,000
Excess of issue price over par
625,000
Paid-in capital, common stock
1,150,000
Total paid-in capital
$1,700,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–06 – LO: 12–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
ACCT.AICPA.FN.04 – Reporting
BUSPROG – Analytic
DATE CREATED:
9/28/2017 3:30 PM
DATE MODIFIED:
10/16/2017 6:21 PM
220. Using the following accounts and balances, prepare the stockholders’ equity section of the balance sheet. Fifty
thousand shares of common stock are authorized, and 5,000 shares have been reacquired.
Common Stock, $50 par
$1,250,000
Paid-In Capital in Excess of Par
800,000
Paid-In Capital from Sale of Treasury Stock
42,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
Copyright Cengage Learning. Powered by Cognero.
Page 97
Retained Earnings
4,350,000
Treasury Stock
155,000
What is the total amount of paid-in capital that would be reported on the statement of stockholders’ equity?
a.
$2,050,000
b.
$2,092,000
c.
$4,350,000
d.
$6,287,000
ANSWER:
b
RATIONALE:
Paid in capital:
Common stock, $5 par (500,000
shares authorized, 105,000
issued)
$1,250,000
Excess of issue price over par
800,000
Paid-in capital, common stock
$2,050,000
From sale of treasury stock
42,000
Total paid-in capital
$2,092,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.12–06 – LO: 12–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
9/28/2017 4:27 PM
DATE MODIFIED:
10/16/2017 6:21 PM
221. Financial statement data for this year and last year for Hanscombe Corp. are as follows:
Current Year
Last Year
Net income
$5,600,500
$4,988,000
Preferred dividends
60,000
60,000
Average number of common shares outstanding
125,000
110,000
Earnings per share for each year were
a.
Current year: $44.32; Last year: $44.80
b.
Current year: $44.80; Last year: $44.32
c.
Current year: $44.80; Last year: $45.35
d.
Current year: $45.35; Last year: $44.80
ANSWER:
a
RATIONALE:
Earnings per Share = (Net Income – Preferred Dividends) / Average Number of
Common Shares Outstanding = Current year: ($5,600,000 – 60,000) / 125,000 =
$44.324, rounded to $44.32
Previous year: ($4,988,000 – $60,000) / 110,000 = $44.80
