ALTERNATE DEMONSTRATION PROBLEM
Chapter Thirteen
Uzi Company received a charter granting the right to issue 200,000 shares
of $1 par value common stock and 10,000 shares of 8% cumulative and
nonparticipating, $50 par value preferred stock that is callable at $80 per
share. Selected transactions are presented below.
2015
Feb. 19 Issued 45,000 shares of common stock at par for cash.
22 Gave the corporation’s promoters 30,000 shares of common
stock for their services in getting the corporation organized.
The directors valued the services at $50,000.
Mar 30 Exchanged 100,000 shares of common stock for the
following assets at fair market values: land, $25,000;
building, $100,000; and machinery, $125,000.
Dec. 31 Closed the Income Summary account. A $25,000 loss was
incurred.
2016
Jan. 12 Issued 1,000 shares of preferred stock at $75 per share.
Dec. 15 The board of directors declared an 8% dividend on preferred
shares and $0.10 per share on outstanding common shares,
payable on January 31 to the January 17 stockholders of
record.
31 Closed the Income Summary account. A $69,000 net income
was earned.
2017
Jan. 31 Paid the previously declared dividends.
Required:
1. Prepare general journal entries to record the selected transactions.
2. Prepare a stockholders’ equity section as of the close of business on
December 31, 2016.
3. Determine the book value per preferred share and per common stock
as of December 31, 2016.
Solution: Alternate Demonstration Problem
Chapter Thirteen
Part
1
2015
Feb. 19 Cash…………………………………………………..… 45,000
Common Stock……………………..…..……. 45,000
22 Organizational Expense………………………... 50,000
Common Stock……………………..…..……. 30,000
Paid-In Capital in Excess of Par
Value, Common Stock………………..… 20,000
2016
Jan. 12 Cash…………………………………………………….. 75,000
Preferred Stock……………………………….. 50,000
Paid-In Capital in Excess of Par
Value, Preferred Stock.…..………..….. 25,000
Dec. 15 Retained Earnings……………………………..…. 21,500
Common Dividend Payable…………..…. 17,500
Preferred Dividend Payable……………… 4,000
Part 2
Stockholders’ Equity
Preferred stock, $50 par value, 8% cumulative and
nonparticipating, 10,000 shares authorized, 1,000
shares issued…………………………..…..…..…..………..….. $ 50,000
Paid-in capital in excess of par, preferred stock…………. 25,000 75,000
Part 3
Book value per preferred share = call value (or par value if stock does not
have a call value) plus any dividends in arrears if cumulative stock. There
are no arrears.
Book value per preferred share = $80.
Another Alternate Demonstration Problem
Chapter Thirteen
At the beginning of 2015, Austin Corporation’s stockholders’ equity
consisted of the following:
Common stock, $25 par value, 30,000 shares authorized,
24,000 shares issued………………………………..………..…..…….. $600,000
Paid-In capital in excess of par value common stock…..…..….. 90,000
Retained earnings…………………………………………..…..………..….... 230,000
Total stockholders’ equity………………………..…..…..………..…. $920,000
During the year, the company completed these transactions:
June 6 Purchased 1,000 shares of treasury stock at $40 per share.
23 The directors voted a $0.50 per share cash dividend payable
on July 25 to the July 20 stockholders of record.
July 25 Paid the dividend declared on June 23.
Aug. 10 Sold 500 of the treasury shares at $45 per share.
Oct. 20 Sold 500 of the treasury shares at $38 per share.
Dec. 15 The directors voted a $0.50 per share cash dividend payable
on January 20 to the January 15 stockholders of record, and
they voted a 2% stock dividend distributable on January 30 to
the January 20 stockholders of record. The market value of
the stock was $40 per share.
31 Closed the Income Summary account and carried the
company’s $60,000 net income to Retained Earnings.
Required:
1. Prepare general journal entries to record the transactions.
2. Prepare a retained earnings statement for the year and the
stockholders’ equity section of the company’s year-end balance sheet.
Solution: Another Alternate Demonstration Problem
Chapter Thirteen
Part 1
June 6 Treasury Stock, Common……………..…..….. 40,000
Cash……………………………………………..… 40,000
23 Retained Earnings………………………..………. 11,500
Common Dividend Payable…………..…. 11,500
July 25 Common Dividend Payable………………..…. 11,500
Cash……………………………………………..… 11,500
31 Income Summary…………………………………. 60,000
Retained Earnings…………………..………. 60,000
Part 2
AUSTIN CORPORATION
Statement of Retained Earnings
For Year Ended December 31, 2015
Retained earnings, January 1, 2015..…..…..………... $230,000
Additions:
Net income for year……………………………….…..… 60,000
Total……………………………………..…..…..………... 290,000
Stockholders’ Equity
Common stock, $25 par value, 30,000 shares authorized,
24,000 shares issued………………………..…..………..…..…….. $600,000
Common stock dividend distributable, 480 shares…..……..…… 12,000
Total common stock issued and to be issued……………….… 612,000
Paid-in capital in excess of par value, common stock…..….….. 97,200
Total capital paid-in by common stockholders..…….... 709,200