170.
In the current year, Jacksonville Company has discovered a material prior-period error in
its calculation of income. The company had incorrectly debited an asset costing $120,000
to an expense account. The related income tax expense was $42,000. If beginning
Retained Earnings in the current period is $3,703,000, net income is $1,011,000 and
dividends declared are $267,000, ending Retained Earnings equals:
171.
Druffle Industries has 5,000 shares of $100 par, 7% noncumulative, nonparticipating
preferred stock issued and outstanding. In 2016, the board of directors declared cash
dividends of $75,000. The amount of dividends to be distributed to preferred shareholders
is:
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172.
Druffle Industries issues 5,000 shares of $100 par, 7% noncumulative, nonparticipating
preferred stock at par. The correct journal entry to record this stock issue is:
Short Answer Questions
173.
What is a corporation? Identify the key advantages and disadvantages of corporations.
174.
What are the rights generally granted to common stockholders?
175.
Explain stock options and their effect on the company.
176.
Explain how to calculate the price-earnings ratio and describe how it is used in analysis of
a company’s financial condition and performance.
177.
Explain how to compute dividend yield and discuss how it is used in analysis of a
company’s financial condition.
178.
Explain how to compute book value per common share and discuss how it can be used to
analyze the financial condition of a corporation.
179.
What is a stock split? How is a stock split different from a stock dividend?
180.
Explain the difference between a large stock dividend and a small stock dividend. In
addition, explain how to record these two types of stock dividends.
181.
What is treasury stock? What reasons might a company hold treasury stock?
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182.
How is the retirement of stock recorded?
Essay Questions
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183.
Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative, fully
participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare
journal entries to record the following selected transactions that occurred during the
company’s first year of operations:
May 5
Exchanged 22,000 shares of common stock for a building with a market value of
$135,000.
July 20
Issued 1,550 shares of preferred stock for $50 cash per share.
Dec. 20
Issued 1,000 shares of preferred stock at $52 cash per share.
184.
A corporation received its charter and began business this year. The company is
authorized to issue 500,000 shares of $100 par, 6%, noncumulative, nonparticipating
May 5
135,000
Common Stock
Excess of Par Value,
Common Stock
Cash (1,550 * $50)
Preferred Stock
Cash (1,000 * $52)
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preferred stock, and 1,000,000 shares of no-par common stock. The following selected
transactions occurred during this year:
Mar. 5
Issued 250 shares of preferred stock for
$102 cash per share.
July 15
Exchanged 750 shares of common stock
for $12,000 in legal services incurred in
the organization of the company.
Prepare journal entries to record these transactions.
185.
Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%, noncumulative,
nonparticipating preferred stock and 5,000,000 shares of no-par common stock. Prepare
journal entries to record the following selected transactions that occurred during this year:
Feb. 1
Issued 10,000 shares of common stock
for $30 cash per share.
15
Exchanged 2,000 shares of preferred
stock for equipment and merchandise
inventory with market values of $80,000
Mar.
Cash (250 * $102)
Preferred Stock (250 *
Paid-in Capital in
Excess of Par Value,
Preferred Stock
Jul.
and $30,000, respectively.
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186.
Pickler Corporation is authorized to issue 2,500,000 shares of $1 par common stock.
Prepare journal entries to record the following selected transactions that occurred during
this year:
Jan. 10
Issued 90,000 shares of common stock
for $12 cash per share.
12
Exchanged 17,000 shares of common
stock for land with a market value of
$200,000.
187.
Given the following information about a corporation’s current year activities, compute the
retained earnings for the current year.
Retained earnings, December 31 (prior
year)
$280,000
Common Stock
(17,000 * $1)
Cost of goods sold
$90,000
Other operating expenses
$54,000
Cash dividends
$31,800
Correction of understatement of net
income in prior period, net of tax
benefit (inventory error)
$23,000
Stock dividends
$20,000
Net income
$36,000
31 (prior year)
Correction of understatement
(inventory error)
Retained earnings, adjusted
Add: Net income
Less: Cash dividends
Stock dividends
188.
Given the following information about a corporation’s current year activities, compute the
retained earnings for the current year.
Retained earnings, January 1
$342,000
Cash dividends
$51,700
Stock dividends
$40,000
Net income
$141,000
Retained earnings, January 1
Add: Net income
Less: Cash dividends
Stock dividends
40,000
189.
Explain where each of the following items should appear in the financial statements of a
corporation:
(1) The accounting department discovered that an entry was made last year to Insurance
Expense instead of to Prepaid Insurance. The after-tax effect of the charge to Insurance
Expense was $5,000.
(2) The company grants five of its employees the option to purchase 100 shares of its $5
par value common stock at its current market price of $20 per share anytime with the next
five years. None of the employees exercised the options in the current year.
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190.
Shaw Corporation reported stockholders’ equity on December 31 of the prior year as
follows:
Common stock, $5 par value,
1,000,000 shares authorized, 500,000
shares issued
$2,500,000
Paid-in capital in excess of par,
common stock
1,000,000
Retained earnings
3,000,000
The following selected transactions occurred during the current year:
Feb. 15
The board of directors declared a 5%
stock dividend to stockholders of
record on March 1, payable March 20.
The stock was selling for $8 per share.
Mar. 9
Distributed the stock dividend.
May 1
A cash dividend of $0.30 per share was
declared by the board of directors to
stockholders of record on May 20,
payable June 1.
June 1
Paid the cash dividend.
Aug. 20
The board decided to split the stock 4-
for-1, effective on September 1.
Sept. 1
Stock split 4-for-1.
Dec. 31
Earned a net income of $800,000 for
the current year.
Prepare a statement of retained earnings as of December 31 of the current year.
191.
Beagle Company earned $90,000 in income and paid cash dividends of $7,000 to preferred
shareholders during the current year. Beagle had 15,500 weighted-average shares of
common stock outstanding for the year. Calculate the company’s earnings per share.
192.
A corporation had current year net income of $237,500. It paid preferred dividends of
$40,000 cash and had 480,000 weighted-average shares of common stock outstanding.
Calculate the corporation’s earnings per share.