11) Dale Murphy Company had beginning retained earnings of $60,000. During the year the
company had net income of $20,000, and paid dividends of $7,500. The Company repurchased
1,000 shares of its stock for $45 during the period. What is the net effect of these transactions on
the items shown below?
A) increase Retained earnings; increase Total shareholders’ equity
B) increase Retained earnings; decrease Total shareholders’ equity
C) decrease Retained earnings; increase Total shareholders’ equity
D) decrease Retained earnings; decrease Total shareholders’ equity
12) Which of the following will INCREASE a company’s retained earnings?
A) earning net income of $50,000 for the year
B) issuing additional shares of common stock at a price above par
C) buying additional shares of treasury stock
D) declaring cash dividends of $0.50 per share
13) Which of the following will DECREASE a company’s retained earnings?
A) earning net income of $50,000 for the year
B) issuing additional shares of common stock at a price above par
C) buying additional shares of treasury stock
D) declaring cash dividends of $0.50 per share
14) Use the following information obtained from the company’s computerized accounting
information system to answer the question(s) below. Note: There were no preferred shares
outstanding and no additional common shares were issued in 2011.
2011
2010
Net income
20,000
26,000
Total assets
169,000
150,000
Total liabilities
94,000
90,000
Total shareholders’ equity
75,000
60,000
Common shares outstanding
10,000 shares
10,000 shares
Dividends declared in 2011 equal ________.
A) $0
B) $5,000
C) $6,000
D) an amount that cannot be determined from the information given
15) Retained earnings includes the earnings kept by a company since the day it began.
16) Retained earnings is also known as paid-in capital.
17) Retained earnings is also known as earned capital.
XOAXOA: LO 8-5
18) What is retained earnings. How is it calculated?
19) DM Company had beginning retained earnings of $80,000. During the year the company
earned net income of $200,000 and declared dividends of $70,000. The Company sold 1,000
shares of stock for $45 each during the year. What is the ending balance in retained earnings?
XOAXOA: LO 8-5
20) Three Brothers Fitness Center had beginning retained earnings of $170,000. During the year
the company had net income of $50,000 and declared dividends of $66,000. The Company
issued 500 shares of stock for $15 each during the year and repurchased 100 shares of treasury
stock for $11 per share. Calculate the ending balance in retained earnings.
21) Aqua, Inc. had the following shareholders’ equity section on its December 31, 2011 balance
sheet:
12/31/11
Preferred stock, $100 par, 6%, noncumulative
$ 50,000
Common stock, $1 par value
400,000
Additional paid-in capital, common stock
1,200,000
Retained earnings
600,000
Total shareholders’ equity
$2,250,000
a.
How many shares of common stock have been
issued?
shares
b.
What was the average selling price of a share of
common stock?
$
c.
How many shares of preferred stock have been
issued?
shares
d.
If you hold ONE SHARE of the preferred stock,
how much of a dividend would you expect for the
year?
$
e.
Beginning retained earnings is $500,000 and net
income is $180,000. What is the TOTAL dividend
that the common shareholders received all together?
$
Learning Objective 8-6
1) Team Shirts issued 20,000 shares of stock for $20 per share. This transaction increased Cash
$400,000 and increased ________ $400,000.
A) Paid-in capital
B) Retained earnings
C) Additional paid-in capital
D) Treasury stock
2) Team Shirts issued 20,000 shares of $2 par value stock for $20 per share. This transaction
increased Cash $400,000 and increased Common stock ________.
A) $400,000
B) $20,000
C) $40,000
D) $360,000
3) Team Shirts issued 20,000 shares of $2 par value stock for $20 per share. This transaction
increased Cash $400,000 and increased Additional paid-in capital ________.
A) $400,000
B) $0
C) $380,000
D) $360,000
4) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares authorized,
___________ shares issued
$ 40,000
Additional paid-in capital
160,000
Retained earnings
100,000
Treasury stock (1,000 shares at cost)
( 6,000)
Total shareholders’ equity
$294,000
This information is part of the company’s ________.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of operations
5) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares authorized,
____________ shares issued $ 40,000
Additional paid-in capital 160,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (6,000)
Total shareholders’ equity $294,000
What is the average price for which a share of stock was issued?
A) $1.00
B) $5.00
C) $6.00
D) $7.35
6) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, ________ shares issued $ 40,000
Additional paid-in capital 160,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (6,000)
Total shareholders’ equity $294,000
How much of this company’s capital was paid-in by shareholders?
A) $ 40,000
B) $160,000
C) $200,000
D) $294,000
7) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, _________ shares issued $ 40,000
Additional paid-in capital 160,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (6,000)
Total shareholders’ equity $294,000
How many shares of common stock are outstanding?
A) 34,000 shares
B) 40,000 shares
C) 1,000 shares
D) 39,000 shares
8) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, ________ shares issued $ 50,000
Additional paid-in capital 250,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (4,000)
Total shareholders’ equity $396,000
This information is part of the company’s ________.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of operations
9) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, ________ shares issued $ 50,000
Additional paid-in capital 250,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (4,000)
Total shareholders’ equity $396,000
What is the average price for which a share of stock was issued?
A) $1.00
B) $6.00
C) $3.00
D) $7.92
10) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, ________ shares issued $ 50,000
Additional paid-in capital 250,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (4,000)
Total shareholders’ equity $396,000
How much of this company’s capital was paid-in by shareholders?
A) $ 50,000
B) $250,000
C) $300,000
D) $396,000
11) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, ________ shares issued $ 50,000
Additional paid-in capital 250,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (4,000)
Total shareholders’ equity $396,000
How many shares of common stock are outstanding?
A) 46,000 shares
B) 50,000 shares
C) 1,000 shares
D) 49,000 shares
12) XS, Inc. began business on January 1, 2011. Its corporate charter allows it to sell 100,000
shares of $1 par value common stock. Fill in the missing descriptions in the space provided for
the statement of changes in shareholders’ equity.
XS, Inc.
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2011
Beginning common stock ($1 par value) $ 0
1. _________________________________ $ 40,000
Additional paid-in capital from common stock issue $ 240,000
Ending contributed capital $ 280,000
Beginning retained earnings $ 0
2. _________________________________ 20,000
3. _________________________________ (4,000)
Ending retained earnings $ 16,000
Beginning treasury stock $ (0)
4. ________________________________ (2,000)
Ending treasury stock $ (2,000)
Total shareholders’ equity $ 294,000
13) Marcy’s Catering had the following information in the shareholders’ equity section of its
balance sheet at January 1, 2011.
Shareholders’ equity:
Common stock, $1 par value, 100,000 shares authorized, 40,000 issued
$ 40,000
Additional paid-in capital
240,000
Retained earnings
36,000
Total shareholders’ equity
$316,000
During 2011, the following transactions occurred:
a. The corporation purchased 500 shares of treasury stock on June 15 for $5 per share.
b. The corporation reported $65,000 in net income.
c. A dividend of $0.50 per share was paid on November 15.
Required: Prepare the shareholders’ equity section of the balance sheet at December 31, 2011
for Marcy’s Catering.
14) Capital Venture, Inc. began operations in January 2011 by issuing common stock for $6 per
share. Net income for 2011 was $100,000 and total dividends were $11,500.
Part A: Fill in the missing amounts in the spaces provided:
Shareholders’ equity: December, 31, 2011
Preferred stock, 6% cumulative, $50 par value, 1,000 shares
authorized & issued 1. $_______
Common stock, $1 par value, 8,000,000 shares authorized, 90,000
2. _____________ shares issued
Paid-in capital in excess of par 3. $________
Retained earnings 4. $________
Treasury stock (5,000 shares at cost) (35,000)
Total shareholders’ equity 5. $
Part B: Use the above information to answer the following questions:
1.
From which financial statement did the above information come?
2.
If you hold ONE SHARE of the preferred stock, how much of a dividend
would you be entitled to before dividends are paid to common
stockholders?
3.
How many shares of common stock are outstanding?
4.
If you hold ONE SHARE of common stock, how much of a dividend
would you receive for the year?
15) One of Bull Beary, Inc.’s financial statements included the following section:
Shareholders’ equity:
12/31/11
Preferred stock, $100 par, 5% noncumulative
$ 100,000
Common stock, $1 par value
10,000
Additional paid-in capital, common stock
60,000
Retained earnings
100,000
Treasury stock, 2,000 shares at $6
(12,000)
1.
From which financial statement did the above information come?
2.
How many shares of preferred stock have been issued?
3.
How many shares of common stock have been issued?
4.
What was the total amount received from issuing common stock?
5.
What was the average selling price of a share of common stock?
6.
Beginning retained earnings is $50,000 and net income is $61,000. How
much are the total dividends declared in 2011?
7.
If you hold ONE SHARE of the preferred stock, how much of a dividend
would you be entitled to before dividends are paid to common
shareholders?
8.
How many shares of common stock are outstanding?
9.
If you hold ONE SHARE of common stock, how much of a dividend
would you receive for the year?
1.
2.
3.
4.
5.
6.
7.
8.
9.
$6,000 / 8,000 common shares outstanding = $0.75
16) JKL Company had the following shareholders’ equity section at December 31, 2011:
Preferred stock, $100 par, 8% cumulative
$1,250,000
Common stock, $2 par value
800,000
Paid-in capital in excess of par, common stock
3,500,000
Retained earnings
3,167,000
Treasury stock (25,000 shares at cost)
(300,000)
Total
$8,417,000
1.
How many shares of preferred stock are outstanding?
2.
What is the total amount received from issuing common stock?
3.
How many shares of common stock are issued?
4.
What was the average selling price of a share of common stock?
5.
If $160,000 of dividends were declared and no dividends were in arrears,
how much of that amount would go to the preferred shareholders?
6.
If $160,000 of dividends were declared and no dividends were in arrears,
how much of that amount would go to the common shareholders?
7.
How many shares of common stock are outstanding?
8.
If $160,000 of dividends were declared and no dividends were in arrears,
how much is the dividend per common share?
17) LMN Company had the following shareholders’ equity section at December 31, 2012:
Preferred stock, $50 par, 6% cumulative
$ 500,000
Common stock, $2 par value
1,000,000
Paid-in capital in excess of par, common stock
5,500,000
Retained earnings
2,598,000
Treasury stock (5,000 shares at cost)
(60,000)
Total
$9,538,000
1.
How many shares of preferred stock are outstanding?
2.
What is the total amount received from issuing common stock?
3.
How many shares of common stock are issued?
4.
What was the average selling price of a share of common stock?
5.
If $200,000 of dividends were declared and no dividends were in arrears,
how much of that amount would go to the preferred shareholders?
6.
If $200,000 of dividends were declared and no dividends were in arrears,
how much of that amount would go to the common shareholders?
7.
How many shares of common stock are outstanding?
8.
If $200,000 of dividends were declared and no dividends were in arrears,
how much is the dividend per common share? Round your answer to the
nearest cent.
Answer:
18) The following information is available for TWO years ended December 31, 20111 and 2012:
Dec.31, 2012
Dec.31, 2011
Common stock ($2 par value)
$ 22,000
$ 20,000
Additional paid-in capital
90,000
80,000
Retained earnings
106,000
100,000
Treasury stock
(2,600)
(600)
Total shareholders’ equity
$215,400
$199,400
1. From which financial statement did the above information come?
2. If this company declared dividends of $4,000 in 2012, how much income did it earn that year?
3. What event could have caused Treasury stock to change from $(600) in 2011 to
$(2,600) in 2012?
4. How many shares of common stock are issued at the end of 2011?
5. How many shares of common stock are issued at the end of 2012?
6. What event could have caused the change in the common stock account from 2011 to 2012?
7. What was the average price of the common stock issued during 2012?
Answer:
19) Excess, Inc.’s corporate charter allows it to sell 200,000 shares of $1 par value common
stock. During 2011, its first year of business, it sold 30,000 shares of its common stock at $8 per
share. Net income for 2011 was $15,000 and dividends of $4,000 were declared. It repurchased
100 shares of its stock for $9 per share.
Required: Complete both the statement of changes in shareholders’ equity and the shareholders’
equity section of the balance sheet.
Excess, Inc.
Statement of Changes in Shareholders’ Equity
For the Year Ended December 31, 2011
Beginning common stock 1.(____ par value) $ 0
2. _________________________________ 3. ________
Additional paid-in capital from common stock issue 4. ________
Ending contributed capital 5. ________
Beginning retained earnings $ 0
6. ________________________________ 7. ________
8. _________________________________ 9. ________
Ending retained earnings 10. $______
Beginning treasury stock $ (0)
11. _______________________________ 12. _______
Ending treasury stock 13. $______
Total shareholders’ equity 14. $______
December 31, 2011
Common stock, 15._____________ par value,
16.____________________ shares authorized,
17.____________________ shares issued
18. ____________________
Additional paid-in capital
19. ____________________
Retained earnings
20. ____________________
Treasury stock
21. ____________________
Total shareholders’ equity
22. ____________________
20) Analyze each of the following items. Indicate on which financial statement each would
appear. Some items may appear on more than one financial statement.
a. income statement
b. balance sheet
c. statement of changes in shareholders’ equity
______ 1. net income
______ 2. treasury stock
______ 3. dividends
______ 4. authorized stock
______ 5. paid-in capital
Learning Objective 8-7
1) PDG Corporation had a return on equity of 18%. Beginning and ending shareholders’ equity
for the corporation were $570,000 and $560,000 respectively. There were 350,000 common
shares and no preferred shares outstanding. What was net income for the year?
A) $101,700
B) $63,000
C) $3,138,888.89
D) $1,944,444.44
2) Team Shirts had a return on equity of 23%. Average shareholders’ equity for the corporation
was $123,000. There were 45,000 common shares and no preferred shares outstanding. What
was net income for the year?
A) $28,290
B) $10,350
C) $534,782.61
D) $195,652.17
3) Use the following information for Equitable, Inc. to answer the following question(s).
Equitable issued no new common stock and had 100,000 common shares issued and outstanding
during 2011. Equitable has no preferred stock.
Net income for the year ended, December 31, 2011
$370,000
Retained earnings, December 31, 2010
$280,000
Retained earnings, December 31, 2011
$360,000
Total shareholders’ equity at December 31, 2011
$725,000
Total liabilities at December 31, 2010
$105,000
Total liabilities at December 31, 2011
$385,000
Total assets at December 31, 2010
$750,000
What was return on equity for the year ended December 31, 2011?
A) 54.0%
B) 51.0%
C) 102.8%
D) 20.0%
4) Use the following information for Equitable, Inc. to answer the following question(s).
Equitable issued no new common stock and had 100,000 common shares issued and outstanding
during 2011. Equitable has no preferred stock.
Net income for the year ended, December 31, 2011
$370,000
Retained earnings, December 31, 2010
$280,000
Retained earnings, December 31, 2011
$360,000
Total shareholders’ equity at December 31, 2011
$725,000
Total liabilities at December 31, 2010
$105,000
Total liabilities at December 31, 2011
$385,000
Total assets at December 31, 2010
$750,000
What was earnings per share for the year ended December 31, 2011?
A) $370,000
B) $0.51
C) $3.70
D) $7.50
5) Net income divided by average common shareholders’ equity is the ________.
A) return on equity
B) earnings per share
C) market value per share
D) profit margin
6) Net income minus preferred dividends, divided by the weighted average number of common
shares outstanding is the ________.
A) return on equity
B) earnings per share
C) market value per share
D) profit margin.
7) Return on equity is ________.
A) net income divided by average shareholders’ equity
B) total shareholders’ equity divided by the average number of outstanding common shares
C) net income divided by the average number of common shares outstanding
D) net income divided by sales
8) Earnings per share is ________.
A) net income, minus preferred dividends, divided by average shareholders’ equity
B) total shareholders’ equity divided by the weighted average number of outstanding common
shares
C) net income, minus preferred dividends, divided by the weighted average number of common
shares outstanding
D) net income divided by sales
9) The most widely-used indicator of a company’s overall performance is________.
A) return on equity
B) earnings per share
C) sales
D) profit margin
10) A measure of how well a company produces income with the amount of investment that
common shareholders have made in the company is the ________.
A) return on equity
B) earnings per share
C) operating income
D) profit margin