Chapter 16: Retained Earnings and Earnings Per Share
80. As of December 31, 2017, the Russell Corporation has 10,000 shares of 10% preferred stock issued and outstanding
with a total par value of $250,000. In addition, as of this date, Russell has 75,000 shares of common stock issued and
outstanding with a total par value of $750,000. Dividends for 2015 and 2016 have not been paid. As of December 31,
2017, the Russell Corporation declared total cash dividends of $290,000 to be paid to both the preferred stockholders
and the common stockholders.
Required:
How much cash will be distributed to both the preferred stockholders and the common stockholders, respectively, on
December 31, 2017, under each of the following independent situations?
a.
The preferred stock is noncumulative and nonparticipating.
b.
The preferred stock is cumulative and nonparticipating.
c.
The preferred stock is cumulative and fully participating.
d.
The preferred stock is cumulative and partially participating up to 15% of its par value.
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Bloom’s: Analyzing
81. The Norman Corporation’s stockholders’ equity accounts have the following balances as of January 1, 2016:
Common stock, $10 par (60,000 shares issued and outstanding)
$ 600,000
Additional paid-in capital: common
1,500,000
Retained earnings
1,200,000
Total stockholders’ equity
$3,300,000
Norman engaged in the following dividend transactions during 2016:
March 1:
Declared a 50% stock dividend on the common stock, distributable on April 10.
The market price per share for the common stock was $35 on March 1.
April 10:
Distributed the stock dividend declared on March 1.
June 30:
Declared a 10% stock dividend on the common stock, distributable on August 5.
The market price for the common stock was $38 per share on June 30.
August 5:
Distributed the stock dividend declared on June 30.
December 1:
A $.60 per share cash dividend was declared on the common stock, payable on
January 20, 2017.
Required:
Prepare the entries to record the dividend transactions for 2016. (Do not record the cash dividend payment in 2017.)
3/1/2016:
Retained Earnings
Common Stock to Be Distributed
(60,000 shares ×.5 ×$10)
4/10/2016:
Common Stock to Be Distributed
Common Stock
6/30/2016:
Retained Earnings
(90,000 shares ×.1 ×$38)
Common Stock to Be Distributed
(90,000 shares ×.1 ×$10)
Additional Paid-in Capital from
Stock Dividend (9,000 shares ×$28)
8/5/2016:
Common Stock to Be Distributed
12/1/2016:
Retained Earnings
Dividends Payable: Common
(99,000 shares ×$.60)
82. Johnson Company has retained earnings balance of $550,000 at the end of 2016. During 2016 Johnson issued
$200,000 of 10 year, 10% bonds. As part of the bond issue the each year $20,000 of retained earnings will be
unavailable to pay dividends.
Required:
Show the proper reporting requirements for Johnson’s retained earnings restriction.
83. During an audit of Madison Company’s December 31, 2017 records it was discovered that the company did not
accurately accrue for $12,500 of depreciation expense. As well as the accrual for interest expense was missed in the
amount $4,500. These errors occurred in 2016 and have a material impact on Madison’s financial records. Madison’s
net income for the year was $123,000. The company is subject to a 35% tax rate. The company had a retained
earnings balance of $557,500 on January 1, 2017, no dividends were paid.
Required:
1) Prepare the necessary journal entries to correct the accounting records of Madison Company’s books.
2) Prepare the statement of retained earnings for 2017. (Headings are not necessary)
84. Following is the stockholders’ equity section of Lewis Corporation’s balance sheet on December 31, 2015.
STOCKHOLDERS’ EQUITY
Contributed capital:
Preferred stock, 9%, $100 par (8,000 shares authorized, 4,000 shares
issued and outstanding)
$ 400,000
Common stock, $5 par (50,000 shares authorized, 30,000 shares
issued and outstanding)
150,000
Common stock subscribed, $5 par (3,000 shares at a subscription
price
of $34 per share)
15,000
Additional paid-in capital on preferred stock
64,000
Additional paid-in capital on common stock
350,000
Total contributed capital
$ 979,000
Retained earnings
440,000
Total contributed capital and retained earnings
$1,419,000
Less: Treasury stock (500 shares of common at $22 per share)
(11,000)
Total stockholders’ equity
$1,408,000
During 2016, the following transactions occurred:
·
2,000 shares of common stock were issued for cash at $25 per share.
·
750 shares of preferred stock were issued for cash at $124 per share.
·
400 shares of treasury stock were reissued for cash at $25 per share.
·
The final payments on the subscribed common stock were received, and 3,000 shares of
common stock were issued.
·
On July 1, 2016, Lewis purchased equity securities for $50,000 and classified them as
available for sale. The fair value of these securities was $60,000 on December 31, 2016.
·
Net income for 2016 was $228,000 and total dividends paid were $81,000.
Required:
Prepare in good form a statement of changes in stockholders’ equity for Lewis Corporation for the year ended
December 31, 2016.
Explanation
Issued
Subscribed
Issued for cash
(common)
Issued for cash
85. The Rico company began 2016 with $90,000 balance in retained earnings. The following events occurred during the
year:
1) Cash dividends of $15,000 were declared.
2) Three thousand shares of callable preferred stock were recalled and retired for a price of $125 per share. The stock
was originally issued for $110 per share.
3) Net income was $125,000.
4) Treasury stock was acquired at a cost of $25,000. The state of Rico’s incorporation requires by a law a restriction
of retained earnings equal to the amount acquired. The company reports the restriction in a note to the financial
statements.
5) A material error in net income for a previous period was corrected. The error decrease retained earnings by $15,000
after a related income tax credit of $5,250. The company is subject to a 35% tax rate.
Required:
Prepare the statement of retained earnings for the year ended 2016, prepare any note disclosures separately.
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United States – BUSPORG: Analytic
86. Rutger was organized at the beginning of 2016. It had the following income items for the year ended December 31,
2016:
Sales
$10,000,000
Gain on sale of assets
250,000
Unrealized gain available for sale securities
140,000
Unrealized gain on trading securities
100,000
Cost of goods sold
5,000,000
Operating expenses
4,000,000
As a new company, Rutger issued 50,000 shares of $1 par common stock for $350,000. On July 5, 2016, Rutger
reacquired 5,000 shares of its own stock for $25,000.
Required:
Prepare the December 31, 2016 statement of changes in stockholders’ equity.
Accu’d
50,000
(25,000)
87. Marco, Inc. determined the following information concerning its common stock during 2016:
January 1
15,500 shares outstanding
March 1
Issued a 3-for-1 stock split
July 1
Issued 1,500 additional shares
October 1
Reacquired 2,000 shares
Required:
What should Marco, Inc. use as the denominator for its basic earnings per share calculation for 2016?
Jan. 1 – Feb. 28
15,500 shares × 3 × 2/12
Mar. 1 – June 30
46,500 shares × 4/12
July 1 – Sept. 30
48,000 shares × 3/12
Oct. 1 – Dec. 31
46,000 shares × 3/12
Weighted average number of common shares outstanding
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ACCT.WHAL.16.16.4 – LO: 16.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
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Bloom’s: Analyzing
88. West, Inc. determined the following information concerning its common stock during 2016:
January 1
80,000 shares outstanding
April 1
Issued a 20% stock dividend
July 1
Issued an additional 2,900 shares
October 1
Issued a 2-for-1 stock split
December 1
Reacquired 5,000 shares
Required:
What should West, Inc. use as the denominator for its basic earnings per share calculation for 2016?
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ACCT.WHAL.16.16.4 – LO: 16.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
89. On January 1, 2016, Jerry Co. had 25,000 shares of common stock outstanding. On April 1, 2016 it had a 10% stock
dividend. On October 1, 2017 it had a 4:1 stock split.
Required:
a.
Determine the weighted average common stock outstanding used in the basic earnings per
share computation at 12/31/2016.
b.
Determine the weighted average common stock outstanding used in the basic earnings per
share computation at 12/31/2017.
c.
Jerry will be issuing comparative financial statements for 2016 and 2017. What number of
shares should be used in the earnings per share computation for 2016 and 2017? Why?
b.
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90. Graham, Inc. began 2017 with 25,000 common shares outstanding and issued a 20% stock dividend on August 1. The
company issued 6,000 shares on December 1. Graham also has 18,000 shares of 9%, $20 par, cumulative preferred
stock outstanding on which no dividends have been paid during either 2016 or 2017. Net income for 2017 was
$175,600.
Required:
Compute Graham, Inc.’s basic earnings per share for 2017.
91. Murphy Co. had 60,000 common shares outstanding on January 1, 2016. The company sold an additional 4,500 shares
on March 1, issued a 3-for-1 stock split on September 1, and reacquired 3,600 shares on December 1. The company
also declared, but has not paid, a dividend on its 10,000 shares of 5%, $10 par, noncumulative preferred stock. The net
loss for the year was $33,190.
Required:
Compute Murphy Co.’s basic earnings per share for 2016.
92. Major Corporation had 50,000 shares of common stock outstanding during 2016 with the following characteristics:
Par value per share
$10
Average market value per share
50
Market value per share on 12/31/2016
60
The company also has compensatory share options to purchase 5,000 shares of common stock at $40 a share during
the year. The unrecognized compensation cost (net of tax) related to these share options is $5 per share. Net income
for the year was $60,600.
Required:
Compute the basic and diluted earnings per share for Major Corporation.
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United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing