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Problem 11-2B (Concluded)
Part 2
BALTHUS CORP.
Statement of Retained Earnings
For Year Ended December 31, 2016
Retained earnings, December 31, 2015............................ $2,160,000
Plus net income.................................................................. 1 ,072,000
3,232,000
Part 3
BALTHUS CORP.
Stockholders’ Equity Section of the Balance Sheet
December 31, 2016
Common stock$1 par value, 320,000 shares
authorized, 200,000 shares issued and outstanding.... $ 200,000
Paid in capital in excess of par value, common stock... 1,400,000
Problem 11-3B (45 minutes)
Part 1
Explanations for each of the journal entries
Jan. 17 Declared a cash dividend of $1 per share of common stock.
($96,000 / 96,000 shares)
Mar. 14 Distributed the common stock dividend.
Part 2
Jan. 17 Feb. 5 Feb. 28 Mar. 14 Mar. 25 Mar. 31
Common stock..........$ 960,000 $ 960,000 $ 960,000 $1,080,000 $1,080,000 $1,080,000
Common stock
dividend distributable 0 0 120,000 0 0 0
Paid-in capital in
Total equity................$2,848,000
$2,848,000
$2,848,000
$2,848,000
$2,848,000
$3,568,000
Problem 11-4B (45 minutes)
Part 1
Outstanding common shares
Feb. 15 May 15 Aug. 15 Nov. 15
Beginning balance...........................17,000 17,000 17,000 17,000
Outstanding shares..........................17 ,000 16 ,000 16 ,000 18 ,000
*(12.5% x 16,000)
Part 2
Cash dividend amounts
Feb. 15 May 15 Aug. 15 Nov. 15
Outstanding shares..........................17,000 16,000 16,000 18,000
Part 3
Capitalization of retained earnings for small stock dividend
Number of shares...............................................................................2,000
Total capitalized..................................................................................$ 84,000
Part 4
Cost per share of treasury stock
Total amount paid...............................................................................$ 40,000
Cost per share....................................................................................$ 40
Part 5
Net income
Retained earnings, beginning balance............................................$270,000
Less dividends: Feb. 15...................................................................(6,800)
May 15....................................................................(6,400)
Total before net income.....................................................................$159,200
Plus net income.................................................................................. ?
Retained earnings, ending balance..................................................$295 ,200
Problem 11-5B (40 minutes)
1. Market price = $90 per share (current stock exchange price given)
2. Computation of stock par values
3. Book values with no dividends in arrears
Book value per preferred share = par value (when not callable)
= $ 250
Common stock
Total equity................................................ $2,400,000
Less equity for preferred......................... (375,000)
Book value per common share............... $ 112.50 ($2,025,000 / 18,000)
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value........................ $ 375,000
Plus two years’ dividends in arrears*..... 60,000
Common stock
Total equity................................................ $2,400,000
Less equity for preferred......................... (435,000)
Common stock equity.............................. $1,965,000
Book value per common share............... $ 109.17 ($1,965,000 / 18,000) rounded
Problem 11-5B (Concluded)
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,500 x $280) $ 420,000
Plus two years’ dividends in arrears*........... 60,000
Common stock
Total equity...................................................... $2,400,000
Less equity for preferred............................... (480,000)
Common stock equity.................................... $1,920,000
6. Dividend allocation in total
Preferred Common Total
2 years’ dividends in arrears.... $ 60,000 $ 0 $ 60,000
Current year dividends.............. 30,000 — 30,000
7. Equity represents the residual interest of owners in the assets of the
business after subtracting claims of creditors. With few exceptions, these
assets and liabilities are valued at historical cost, not market value.
SERIAL PROBLEM — SP 11
Serial Problem — SP 11, Business Solutions (25 minutes)
1a. Journal entry for issuance of common stock to Cicely
Issuance of common stock.
1b. Journal entry for issuance of preferred stock to Marcello
Cash.................................................................................86,000
1c. Journal entry to record $86,000 borrowed from the bank
Cash.................................................................................86,000
2. Evaluation of the three proposals
a. Cicely’s investment as a common shareholder would mean that
Santana would have a second person who would be an owner.
Santana has been working on her own for about 15 months, and
As Cicely is an owner there is no need to repay the $86,000, nor is
Serial Problem (concluded)
b. Having a preferred shareholder means that Santana’s Uncle
Marcello will not have the same voting rights as Santana. Marcello
may be expecting regular dividend, however, so Santana should be
c. The loan requires regular monthly payments, so Santana will need
to budget the $1,000 each month as a cash outflow. The loan may
exert some control over her business.
3. There is no correct answer to the question of which proposal Santana
