194) Effectively the same as a 2-for-1 stock split.
Difficulty: 2 Medium
Topic: Accounting for Treasury Stock; Retained Earnings; Stock Dividends and Stock Splits;
Stockholders’ Equity in the Balance Sheet; Statement of Stockholders’ Equity; Analysis – Return
on Equity; Analysis – Price-Earnings Ratio
Learning Objective: 10-04 Account for treasury stock.; 10-05 Describe retained earnings and
record cash dividends.; 10-06 Explain the effect of stock dividends and stock splits.; 10-07
Prepare and analyze the stockholders’ equity section of a balance sheet and the statement of
stockholders’ equity.; 10-08 Evaluate company performance using information on stockholders’
equity.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
195) A debit balance in retained earnings.
Difficulty: 2 Medium
Topic: Accounting for Treasury Stock; Retained Earnings; Stock Dividends and Stock Splits;
Stockholders’ Equity in the Balance Sheet; Statement of Stockholders’ Equity; Analysis – Return
on Equity; Analysis – Price-Earnings Ratio
Learning Objective: 10-04 Account for treasury stock.; 10-05 Describe retained earnings and
record cash dividends.; 10-06 Explain the effect of stock dividends and stock splits.; 10-07
Prepare and analyze the stockholders’ equity section of a balance sheet and the statement of
stockholders’ equity.; 10-08 Evaluate company performance using information on stockholders’
equity.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
196) The Shoe Exchange issues 5,000 shares of its $1 par value common stock to provide funds
for further expansion. If the issue price is $15 per share, what is the entry to record the issuance
of the stock?
197) Environmental Designs issues 10,000 shares of its $1 par value common stock at $25 per
share. (1) Record the issuance of the stock. (2) Record the issuance of the stock assuming it is
no-par value stock.
198) Diane’s Designs has two classes of stock authorized: 8%, $10 par value preferred and $1 par
value common. The following transactions affect stockholders’ equity during 2021, its first year
of operations:
January 1 Issue 200,000 shares of common stock for $15 per share.
February 6 Issue 1,000 shares of preferred stock for $11 per share.
October 10 Purchase 10,000 shares of its own common stock for $18 per share.
November 12 Resell 5,000 shares of treasury stock at $20 per share.
Record each of these transactions.
199) Northwest Clothing Supply has the following transactions during the year related to
stockholders’ equity:
January 1 Issues 3,000 shares of no-par value common stock for $20 per share.
March 15 Issues 800 shares of $20 par value preferred stock for $22 per share.
December 1 Declares a cash dividend of $1 per share to all stockholders
of record (both common and preferred) on December 15.
December 15 Date of record.
December 31 Pays the cash dividend declared on December 1.
Record each of these transactions.
85
200) Frontier City is trying to decide between the following two alternatives to finance its new
$10 million roller coaster:
a. Issue $10 million of 6% bonds at face amount.
b. Issue one million shares of common stock for $10 per share.
Issue Bonds
Issue Stock
Operating income
$5,000,000
$5,000,000
Interest expense
Income before tax
Income tax expense (30%)
________
________
Net income
________
________
# of shares
3,000,000
4,000,000
Earnings per share
________
________
Assuming bonds or shares of stock are issued at the beginning of the year, complete the income
statement listed above for each alternative. Which alternative results in the highest earnings per
share?
201) Oregon Outfitters issues 1,000 shares of $1 par value common stock at $20 per share. Later
in the year, the company decides to purchase 200 shares at a cost of $22 per share. (1) Record the
original issue of the 1,000 shares, (2) Record the purchase of 200 shares, and (3) record the entry
if Oregon Outfitters resells the 200 shares of treasury stock at $25 per share.
202) Court Casuals has 100,000 shares of common stock outstanding as of the beginning of the
year and has the following transactions affecting stockholders’ equity during the year.
May 18 Issues 25,000 additional shares of $1 par value common stock for
$40 per share.
May 31 Purchases 5,000 shares of treasury stock for $45 per share.
July 1 Declares a cash dividend of $1 per share to all stockholders of record on
July 15. Hint: Dividends are not paid on treasury stock.
July 31 Pays the cash dividend declared on July 1.
August 10 Resells 2,500 shares of treasury stock purchased on May 31 for
$46 per share.
Record each of these transactions.
203) Tropical Rainwear issues 1,000 shares of its $20 par value preferred stock for cash at $22
per share. Record the issuance of the preferred shares.
204) Desert Apparel has 5,000 shares of common stock outstanding. On April 1, the company
declares a $2 per share dividend to stockholders of record on April 15. The dividend is paid on
April 30. Record all necessary entries on the appropriate dates for cash dividends.
205) On May 15, Canadian Falcon declares a quarterly cash dividend of $0.15 per share payable
on June 10 to all stockholders of record on May 31. Record Canadian Falcon’s declaration and
payment of cash dividends for its 200,000 shares of common stock.
206) On March 31, the board of directors of Shoeboxes, Inc. declares a 100% stock dividend on
its 100,000, $0.01 par value, common shares. The market price of Shoeboxes common stock is
$30 on March 31. Record the stock dividend.
91
207) Indicate whether each of the following transactions increases (+), decreases (−), or has no
effect (NE) on total assets, total liabilities, and total stockholders’ equity.
Transaction
Total
Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Purchase treasury stock
Sale of treasury stock
Transaction
Liabilities
Equity
Issue common stock
Issue preferred stock
Purchase treasury stock
Sale of treasury stock
92
208) Indicate whether each of the following transactions increases (+), decreases (−), or has no
effect (NE) on total assets, total liabilities, and total stockholders’ equity.
Transaction
Total
Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Purchase treasury stock
Sell treasury stock
Declare cash dividend
Pay cash dividend
100% stock dividend
2-for-1 stock split
Transaction
Liabilities
Equity
Issue common stock
Issue preferred stock
Purchase treasury stock
Sell treasury stock
Declare cash dividend
Pay cash dividend
100% stock dividend
2-for-1 stock split
209) Prom Night Formal Wear has the following stockholders’ equity accounts at December 31,
2021: Common Stock, $1 par value, 2,000,000 shares; Additional Paid-in Capital, $22 million;
Retained Earnings, $15 million; and Treasury Stock, 50,000 shares, $1.25 million. Prepare the
stockholders’ equity section of the balance sheet.
210) Donnie Hilfiger has the following balances in its stockholders’ equity accounts on
December 31, 2021: Treasury Stock, $375,000; Common Stock, $350,000; Preferred Stock,
$1,200,000; Retained Earnings, $1,675,000; and Additional Paid-in Capital, $3,150,000. Prepare
the stockholders’ equity section of the balance sheet for Donnie Hilfiger as of December 31,
2021.
211) Formal Footwear has the following beginning balances in its stockholders’ equity accounts
on January 1, 2021: Common Stock, $500,000; Additional Paid-in Capital, $8,200,000; and
Retained Earnings, $2,400,000. Net income for the year ended December 31, 2021, is $900,000.
Formal Footwear has the following transactions affecting stockholders’ equity in 2021:
May 18 Issues 10,000 additional shares of $5 par value common stock for $60 per share.
July 1 Declares a cash dividend of $3 per share to all stockholders of record on July 15.
July 31 Pays the cash dividend declared on July 1.
Taking into consideration all the entries described above, prepare the statement of stockholders’
equity for the year ended December 31, 2021, using the format provided.
Formal Footwear
Statement of Stockholders’ Equity
For the year ended December 31, 2021
Common
Stock
Additional
Paid-in
Capital
Total
Stockholders’
Equity
Balance, January 1
$500,000
$8,200,000
$11,100,000
Issue common stock
Cash dividends
Net income
Balance, December 31
Common
Stock
Additional
Capital
Retained
Earnings
Total
Stockholders’
Equity
Balance, Jan. 1
$500,000
$8,200,000
$2,400,000
$11,100,000
Issue common stock
Cash dividends
Net income
_________
__900,000
__900,000
Balance, Dec. 31
$8,750,000
$2,970,000
$12,270,000
96
212) Court Casuals has the following beginning balances in its stockholders’ equity accounts on
January 1, 2021: Common Stock, $100,000; Additional Paid-in Capital, $4,100,000; and
Retained Earnings, $3,000,000. Net income for the year ended December 31, 2021, is $800,000.
Court Casuals has the following transactions affecting stockholders’ equity in 2021:
May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share.
May 31 Purchases 5,000 shares of treasury stock for $45 per share.
July 1 Declares a cash dividend of $1 per share to all stockholders of record on
July 15. Hint: Dividends are not paid on treasury stock.
July 31 Pays the cash dividend declared on July 1.
August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $48 per share.
Taking into consideration all the entries described above, prepare the statement of stockholders’
equity for the year ended December 31, 2021, using the format provided.
Court Casuals
Statement of Stockholders’ Equity
For the year ended December 31, 2021
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
Balance, Jan. 1
$100,000
$4,100,000
$3,000,000
$ -0-
$7,200,000
Issue common stock
Purchase treasury stock
Cash dividends
Resell treasury stock
Net income
Balance, Dec. 31
213) The financial statements of Heatwave Athletic Wear include the following selected data ($
in millions): Sales, $22,502; Net income, $875; Beginning stockholders’ equity, $3,567; Ending
stockholders’ equity, $4,102. Calculate the return on equity.
214) The financial statements of Trail Apparel include the following selected data (in millions):
($ in thousands, except stock price)
2021
2020
Sales
$728,121
$751,558
Net income
16,012
13,626
Dividends
4,087
3,885
Stockholders’ equity, end of year
235,153
221,457
Shares outstanding
45,000
40,000
Average stock price
$5.40
$4.70
Calculate the following amounts for 2021:
1. Return on equity.
2. Dividend yield.
3. Earnings per share.
4. Price-earnings ratio.