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Problem 13-5A (40 minutes)
1. Market price = $85 per share (current stock exchange price given)
2. Computation of par values of stock
3. Book values with no dividends in arrears
Book value per preferred share = par value (when not callable) = $50
Common stock
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value........................... $ 50,000
Common stock
Total equity................................................. $280,000
Problem 13-5A (Concluded)
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,000 x $55)....... $ 55,000
Plus two years’ dividends in arrears*.......... 5,000
Common stock
Total equity.................................................... $280,000
Less equity for preferred.............................. (60,000)
6. Dividend allocation in total
Preferred Common Total
2 years’ dividends in arrears............$ 5,000 $ 0 $ 5,000
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 reported at historical cost, not market
PROBLEM SET B
Problem 13-1B (30 minutes)
Part 1
a. To record sale of 3,000 ($3,000/$1 per share) shares of $1 par value
b. To record issuance of 1,000 ($1,000/$1 per share) shares of $1 par value
c. To record acquisition of assets and liabilities by issuing 800 ($800/$1
Part 2
Number of outstanding shares
Issued in (a)......................................... 3,000
Part 3
Minimum legal capital = Outstanding shares x Par value per share
Part 4
Total paid-in capital from common stockholders
From transaction (a)...........................$120,000
Part 5
Book value per common share
Problem 13-2B (60 minutes)
Part 1
Jan. 10 Treasury Stock, Common.............................................480,000
Mar. 2 Retained Earnings........................................................240,000
Mar. 31 Common Dividend Payable..........................................240,000
Nov. 11 Cash*.............................................................................312,000
Nov. 25 Cash*.............................................................................152,000
Paid-In Capital, Treasury Stock....................................24,000
Dec. 1 Retained Earnings........................................................500,000
Dec. 31 Income Summary..........................................................1,072,000
Problem 13-2B (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
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
Problem 13-3B (45 minutes)
Part 1
Explanations for each of the journal entries
Jan. 17 Declared a cash dividend of $1 per share of common stock.
Feb. 5 Paid the cash dividend on common stock.
Feb. 28 Declared a 12.5% stock dividend when the market value is $21 per
Part 2
Jan. 17 Feb. 5 Feb. 28 Mar. 14 Mar. 25 Mar. 31
Common stock..........$ 960,000 $ 960,000 $ 960,000 $1,080,000 $1,080,000 $1,080,000
Common stock
Problem 13-4B (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
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
Part 5
Net income
Retained earnings, beginning balance...........................................$270,000
Less dividends: Feb. 15.................................................................(6,800)
May 15..................................................................(6,400)
Problem 13-5B (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)
Common stock
Total equity.............................................. $2,400,000
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value....................... $ 375,000
Common stock
Total equity.............................................. $2,400,000
Problem 13-5B (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
6. Dividend allocation in total
Preferred Common Total
2 years’ dividends in arrears.... $ 60,000 $ 0 $ 60,000
Dividends per share for the common stock
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 13
Serial Problem — SP 13, 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
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
The preferred stock does not require repayment, and technically,
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
3. There is no correct answer to the question of which proposal Santana
should adopt. Class discussion may indicate which proposal the class
prefers.
