Chapter 11: Stockholders’ Equity
160. In the space provided, indicate the effect of the dividend transactions on each account listed by writing the
amount and whether the account would be increased or decreased. The company has 10,000 shares of $1 par
value, common stock authorized, and 8,000 shares issued. In instances where there is no effect on that account,
place an X in the box.
Item
Common
Stock
Common
Stock
Dividend
Distributable
Additional
Paid-in
Capital—
Common
Retained
Earnings
a. May 1, declared cash
dividend totaling $2,000.
b. May 15, paid the cash
dividend declared on May 1.
c. May 25, declared a 10% stock
dividend when the market
price of the stock was $8.
d. May 30, distributed the
stock dividend.
e. June 15, declared a 2-for-1 stock
split.
Common
Stock
Common
Stock
Dividend
Additional
Paid-in
Capital—
Retained
Earnings
a. May 1, declared cash
dividend totaling $2,000.
b. May 15, paid the cash
dividend declared on May 1.
d. May 30, distributed the
stock dividend.
e. June 15, declared a 2-for-1 stock
Chapter 11: Stockholders’ Equity
161. Assume that on December 31, 2016, Potaw Company has outstanding 8,000 shares of $15 par, 6%
cumulative, preferred stock and 40,000 shares of $5 par common stock. Potaw was unable to declare a
dividend in 2014 or 2015 but wants to declare a $75,000 dividend for 2016.
REQUIRED:
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?
162. Assume that on December 31, 2016, Potaw Company has outstanding 8,000 shares of $15 par, 6%
noncumulative, preferred stock and 40,000 shares of $5 par common stock. Potaw was unable to declare a
dividend in 2014 or 2015 but wants to declare a $75,000 dividend for 2016.
REQUIRED:
1. How much total cash is distributed to preferred stockholders?
2. How much total 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?
Chapter 11: Stockholders’ Equity
163. Lakeview Company reported the following amounts on its balance sheet at December 1, 2015:
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
The following transactions occurred during December:
1. Declared a 20% stock dividend on comnon stock on December 3, when the stock was selling at
$12 per share. The stock dividend will be distributed on December 20, 2015.
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.
A) Show the effect of the transactions on the accounting equation.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
B) Answer the following questions:
1. How many common shares are outstanding at December 31, 2015?
2. What effect will the stock split have on the stock’s market value?
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Revenues
–
Expenses
=
Net
Chapter 11: Stockholders’ Equity
2.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Preferred Stock
Dividend
Distributable
(800)
Preferred Stock
800
3. No effect.
B.
1. 400 × 2 = 800 shares
2. Stock splits generally cause market value to reduce in the same proportion as the split.
Chapter 11: Stockholders’ Equity
164. Albion Company reported the following amounts on its balance sheet at January 1, 2015:
Preferred stock, $10 par, 5%, 1,000 shares issued and outstanding
$10,000
Common stock, $1 par, 8,000 shares issued and outstanding
8,000
Additional paid-in capital—common
52,000
Total contributed capital
$70,000
Retained earnings
22,000
Total stockholders’ equity
$92,000
The following transactions occurred during 2015:
1. Declared a 20% stock dividend on preferred stock on May 21, when the stock was selling at $15 per share.
The stock dividend will be distributed on June 30, 2015.
2. Distributed the preferred stock dividend on June 30.
Show the effects of the transactions on the accounting equation and prepare the stockholders’ equity section of
Albion’s balance sheet at December 31, 2015.
Chapter 11: Stockholders’ Equity
Albion Company
Stockholders’ Equity Section of the Balance Sheet
at December 31, 2015
Preferred stock, $10 par value, 5%, 1,200 shares issued and outstanding
$12,000
Additional paid-in capital—preferred
1,000
Common stock, $1 par value, 8,000 shares issued and outstanding
8,000
Additional paid-in capital—common
52,000
Total contributed capital
$73,000
Retained earnings
19,000
Total stockholders’equity
$92,000
165. 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 $________________________
Chapter 11: Stockholders’ Equity
166. Assume that Wei Company’s Stockholders’ Equity category of the balance sheet appears as follows as of January
1, 2015:
Common stock, $15 par, 7,000 shares issued and outstanding
$105,000
Additional paid-in capital—Common
70,000
Retained earnings
300,000
Total stockholders’ equity
$475,000
Assume that Wei’s common stock is selling at $35 per share on that date.
REQUIRED:
1. Assume that on January 2, 2015, Wei declares a 10% stock dividend to common stockholders to be distributed
on April 1, 2015. Prepare the journal entry to be recorded by Wei.
2. Instead of (1) above, assume that on January 2, 2015, Wei declares a 100% stock dividend to be distributed
on April 1, 2015. Prepare the journal entry to be recorded by Wei.
3. What entry would be made when the stock in (2) above, is actually distributed?
Chapter 11: Stockholders’ Equity
Chapter 11: Stockholders’ Equity
167. Assume that Milo Company’s Stockholders’ Equity category of the balance sheet appears as follows as of January
1, 2015:
Common stock, $15 par, 7,000 shares issued and outstanding
$105,000
Additional paid-in capital—Common
70,000
Retained earnings
30,000
Total stockholders’ equity
$205,000
Assume that Milo’s common stock is selling at $35 per share on that date.
REQUIRED:
What is the effect on the Stockholders’ Equity section of Milo’s balance sheet if the company issues a 3-for-1
stock split on January 2, 2015?
168. Park Avenue Toys reported the following information at December 31, 2015:
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
Answer the following questions for Park Avenue Toys.
1. Would the book value per share increase, decrease, or remain the same, if the company declared a 3-
for-1 stock split on December 31, 2015? Explain.
2. If cash dividends were declared on January 10, 2016, at $1 per share, by how much would retained
earnings decrease as a result? (Assume that the 3-for-1 stock split occurred.)
Chapter 11: Stockholders’ Equity
169. Marvin’s Shrimp Restaurant incorporated as a new business on January 1, 2015. 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, 2015 the company issued 15,000 shares of common stock for $8 per
share. Net income for the year ended December 31, 2015, 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, 2015.
Chapter 11: Stockholders’ Equity
170. Use the comparative financial statements of Penny Company for the year ended December 31, 2015 to
answer the following question(s).
Penny Company
Statement of Stockholder’s Equity
for the Year Ended December 31, 2015
in thousands, except share data
Common Stock
Retained
Treasury Stock
Shares
Amount
Earnings
Shares
Amount
Total
Balance, Jan. 1, 2015
57,936,988
$ 89,861
$20,037
$109,898
Exercise of stock options
including tax benefit of
$4,754
945,780
7,911
7,911
Sale of common stock
12,050,000
163,873
163,873
Stock subscription notes
Repayments
3,671
3,671
Conversion of convertible
debentures, net
6,798
100
100
Sale of common stock under
employee stock purchase
plan
17,424
263
263
Net earnings
26,102
26,102
Unrealized holding gains, net
141
141
Translation adjustment
272
272
Balance Dec. 31, 2015
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, 2015 to December
31, 2015?
(2) Did Penny declare dividends during 2015? How do you know? Which items would be included as part
of comprehensive income, if any?
Chapter 11: Stockholders’ Equity
171. Use the comparative financial statements of Penny Company for the year ended December 31, 2015 to
answer the following question.
Penny Company
Statement of Stockholder’s Equity
for the Year Ended December 31, 2015
in thousands, except share data
Common Stock
Retained
Treasury Stock
Shares
Amount
Earnings
Shares
Amount
Total
Balance, Jan. 1, 2015
57,936,988
$ 89,861
$20,037
$109,898
Exercise of stock options
including tax benefit of
$4,754
945,780
7,911
7,911
Sale of common stock
12,050,000
163,873
163,873
Stock subscription notes
repayments
3,671
3,671
Conversion of convertible
debentures, net
6,798
100
100
Sale of common stock under
employee stock purchase
plan
17,424
263
263
Net earnings
26,102
26,102
Unrealized holding gains, net
141
141
Translation adjustment
272
272
Balance Dec. 31, 2015
70,956,990
$265,679
$46,552
0
$ 0
$312,231
See notes to consolidated financial statements.
REQUIRED:
Prepare a statement of retained earnings for the year ended December 31, 2015.
Chapter 11: Stockholders’ Equity
172. On March 31, 2015, Outdoor Closets, Inc. had common stock of $230,000, retained earnings of $65,000, and
additional paid-in capital—common of $540,000. During the fiscal year ended March 31, 2016, 500 shares of
stock were sold for $60,000, of which $40,000 represented additional paid-in capital. The company reported net
income of $140,000 and declared and paid dividends of $80,000. In good form, prepare the financial statement
that shows all of the changes in the stockholders’ equity accounts.
173. On December 31, 2015, 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, 2016, 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, 2016?
C) Prepare a statement of retained earnings for Aire Dyne, Inc. for the year ended December 31,
2016, in good form.
Chapter 11: Stockholders’ Equity
174. The following stockholders’ equity section of Petal Pusher Company’s balance sheet appeared at December 31,
2015.
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?
175. Several transactions occurred for Shadow Dreams Corporation during 2015. 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,
2015.
C)
____ Shadow Dreams declared and paid $320,000 of cash dividends to common and preferred
stockholders during 2015.
Chapter 11: Stockholders’ Equity
176. Assume the following independent situations:
1. Company A has total stockholders’ equity at yearend of $600,000 and has 10,000 shares of stock.
2. Company B has total stockholders’ equity at yearend of $600,000 and has 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.
177. Heather Valley Company has the following amounts in the Stockholders’ Equity category of the balance sheet at
December 31, 2015:
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.