Chapter 13 – Accounting for Corporations
Chapter 13
Accounting for Corporations
QUESTIONS
1. Organization expenses (costs) are incurred in creating a corporation. Examples include:
2. Organization expenses (costs) are reported as expenses when incurred—as part of
3. The board of directors of a corporation is responsible for directing the corporation’s
affairs. The directors are elected by the corporation’s stockholders.
4. Authorized shares represent the maximum number of shares that a corporation’s charter
5. The preemptive right of common stockholders is the right to maintain their relative
6. The general rights of common stockholders include: (1) the right to vote in
stockholders’ meetings, (2) the right to sell or otherwise dispose of stock, (3) the
7. The market value per share of stock is the price at which a share of stock is bought or
8. The par value is an arbitrary value placed on a share of stock when it is authorized. The
9. Convertible preferred stock is potentially attractive because it offers the safety of a
10. The three important dates governing dividends are:
a. date of declarationthe date the directors vote to pay a dividend.
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Chapter 13 – Accounting for Corporations
11. Cash dividends debited against paid-in capital accounts are called liquidating dividends
12. Declaring a stock dividend has no effect on assets, liabilities, or total equity. Also, the
13. A stock dividend results in a distribution of additional shares to stockholders and the
capitalization of retained earnings. A stock split calls in the old shares and replaces
14. A stock dividend should not be considered income because it does not transfer any
assets from the corporation to the stockholders.
15. A treasury stock purchase reduces total assets and total equity by equal amounts.
16. Treasury stock purchases affect the corporate assets and stockholders’ equity just like a
17. With a simple capital structure, earnings per share is calculated by first subtracting any
18. A stock option is the right to purchase common stock at a fixed price over a specified
period.
19. When a corporation has no preferred stock, book value per share is calculated by
20. Apple discloses on its fiscal 2013 balance sheet that it has 1,800,000 common shares
21. The par value for Google’s preferred stock is reported to be $0.001. A low par value can
22. From a review of its statement of cash flows, Samsung did not report any cash outlay in
2013 to repurchase treasury stock. However, the Company reported disposal of treasury
stock of ₩34,390 (in KRW millions) in 2013.
QUICK STUDIES
Quick Study 13-1 (10 minutes)
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Chapter 13 – Accounting for Corporations
True statements: 3, 4, 5 and 7
Quick Study 13-2 (5 minutes)
a. Cash………………………………………………………………… 375,000
Common Stock, $5 Par Value……………………….. 375,000
Issued par value stock for cash. (75,000 x $5)
Quick Study 13-3 (5 minutes)
a. Cash*………………………………………………………………. 648,000
b. Cash*………………………………………..…………………….. 648,000
Common Stock, $2 Stated Value**…………….….. 72,000
Paid-In Capital in Excess of Stated Value,
Common Stock***……………………………….…….. 576,000
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Chapter 13 – Accounting for Corporations
Quick Study 13-4 (5 minutes)
a. Cash…………………………………………………………………………1,827,000
Common Stock, No-Par Value………..…………………….. 1,827,000
Issued no-par value stock for cash. (63,000 x $29)
b. Land………………………………………………..……………………….1,827,000
Common Stock, No-Par Value………..…………………….. 1,827,000
Issued no-par value stock for land.
Quick Study 13-5 (15 minutes)
(c) Apr. 6 Inventory…………………………….……………………………45,000
Machinery………………………………………………………...145,000
Note Payable………………………………………..……… 94,000
Common Stock, $25 Par Value………………..……. 50,000
Paid-In Capital in Excess of Par Value,
Common Stock…………………………………………. 46,000
Issued stock for inventory, machinery, and note.
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Chapter 13 – Accounting for Corporations
Quick Study 13-6 (10 minutes)
July 15 Retained Earnings………………………………………….………165,000
Common Dividend Payable………………………………. 165,000
Declared cash dividend on common.
Quick Study 13-7 (10 minutes)
Jun Company
Stockholders’ Equity
April 2 (after stock dividend)
Common stock$5 par value, 375,000 shares
authorized, 220,000 shares issued and outstanding ….………... $1,100,000
Paid-in capital in excess of par value, common stock.………….... 900,000
Total paid-in capital …………………………………………………….………… 2,000,000
Supporting work
Apr. 2 Retained Earnings………….………………..….….…..…..….….400,000
Common Stock*………….………………..………..….…..…. 100,000
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Chapter 13 – Accounting for Corporations
Quick Study 13-8 (10 minutes)
True statements: 1, 2 and 4
Quick Study 13-9 (5 minutes)
1. Cash*………………………………………………………………….…….510,000
Preferred Stock, $100 Par Value**…………..…………….. 500,000
2. Preferred dividend =
$100 par value/share x 7% x 5,000 shares = $35,000
Quick Study 13-10 (10 minutes)
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Chapter 13 – Accounting for Corporations
Quick Study 13-11 (10 minutes)
May 3 Treasury Stock (4,000 shares)…………………………………36,000
Cash……………………………………………………………..…. 36,000
Purchased treasury stock
($36,000 / 4,000 shares = $9 per share cost).
Quick Study 13-12 (10 minutes)
Quick Study 13-13 (10 minutes)
1. This material error should be reported on the statement of retained
earnings (and/or the statement of stockholders’ equity) as a prior
2. This change in the expected useful life is a change in an accounting
estimate—affecting current and future accounting periods. Therefore,
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Chapter 13 – Accounting for Corporations
Quick Study 13-14 (10 minutes)
Quick Study 13-15 (10 minutes)
Basic earnings per share: =
Quick Study 13-16 (10 minutes)
Price-earnings ratio = = 5.2
Quick Study 13-17 (10 minutes)
Dividend yield = = = 7.2%
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Net income – Preferred dividends
Net income – Preferred dividends
Weighted-average common shares outstanding
Market value per share
Earnings per share
$20.54
$3.95
$2.34
$32.50
Annual cash dividends per share
Market value per share
Chapter 13 – Accounting for Corporations
Quick Study 13-18 (10 minutes)
Total stockholders’ equity………………………………………..………………. $1,850,000
Less equity attributable to preferred shares
Call price (20,000 shares x $40)……………………………….…………….. 800,000
Quick Study 13-19 (10 minutes)
Mar. 31 Cash…………………………………………………………….….. 3,271
Issued Capital, at Par Value…………………………. 300
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Chapter 13 – Accounting for Corporations
EXERCISES
Exercise 13-1 (15 minutes)
Characteristic Corporations
1. Owner authority and control..………...........One vote per share
2. Ease of formation………………………………….Requires government approval
3. Transferability of ownership…………………..Readily transferred
Exercise 13-2 (15 minutes)
1.
Feb. 20 Cash…………………………………………………………………152,000
Common Stock, $2 Par Value*.………………….... 38,000
**$152,000 – $38,000 = $114,000
2.
Feb. 20 Cash…………………………………………………………………152,000
Common Stock, No-Par Value……………….…….. 152,000
Issued common stock for cash.
3.
Feb. 20 Cash…………………………………………………………………152,000
Common Stock, $5 Stated Value*.……………….. 95,000
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