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Chapter 13 - Accounting for Corporations
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
*2 years’ dividends = 2 x ($50,000 x 5%) = $5,000
Number of outstanding shares..................... 1,000
Book value per preferred share.................... $ 60.00 ($60,000 / 1,000 sh.)
Common stock
Total equity..................................................... $280,000
6. Dividend allocation in total
Preferred Common Total
2 years’ dividends in arrears............$ 5,000 $ 0 $ 5,000
Current year dividends..................... 2,500 2,500
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
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Chapter 13 - Accounting for Corporations
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
common stock for $40 ($120,000/3,000) per share.
d. To record sale of 1,200 shares of $1 par value common stock for $50
per share.
Part 2
Number of outstanding shares
Issued in (a).......................................... 3,000
Issued in (b).......................................... 1,000
Part 3
Minimum legal capital = Outstanding shares x Par value per share
= 6,000 x $1 = $6,000
Part 4
Total paid-in capital from common stockholders
From transaction (a)............................$120,000
From transaction (b)............................ 40,000
Part 5
Book value per common share
Total stockholders’ equity (given)...... $283,000
Outstanding shares (from 2)............... 6,000
Book value per common share..........$ 47.17 ($283,000 / 6,000 shares)
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Chapter 13 - Accounting for Corporations
Problem 13-2B (60 minutes)
Part 1
Jan. 10 Treasury Stock, Common..............................................480,000
Cash........................................................................... 480,000
Purchased treasury stock (40,000 x $12).
Nov. 11 Cash*...............................................................................312,000
Treasury Stock, Common**..................................... 288,000
Paid-In Capital, Treasury Stock***.......................... 24,000
Reissued treasury stock.
*(24,000 x $13) **(24,000 x $12) ***(24,000 x $1)
Nov. 25 Cash*...............................................................................152,000
Paid-In Capital, Treasury Stock.....................................24,000
Retained Earnings..........................................................16,000
Treasury Stock, Common**..................................... 192,000
Reissued treasury stock.
*(16,000 x $9.50) **(16,000 x $12)
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Chapter 13 - Accounting for Corporations
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
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
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Chapter 13 - Accounting for Corporations
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.
($96,000 / 96,000 shares)
Mar. 25 Executed a 2-for-1 stock split. ($10 par / $5 par = 2-for-1 ratio)
Mar. 31 Closed the Income Summary account to Retained Earnings.
Part 2
Jan. 17 Feb. 5 Feb. 28 Mar. 14 Mar. 25 Mar. 31
Common stock..........$ 960,000 $ 960,000 $ 960,000 $1,080,000 $1,080,000 $1,080,000
Common stock
dividend distributable 0 0 120,000 0 0 0
Paid-in capital in
Chapter 13 - Accounting for Corporations
Problem 13-4B (45 minutes)
Part 1
Outstanding common shares
Feb. 15 May 15 Aug. 15 Nov. 15
Beginning balance...........................17,000 17,000 17,000 17,000
*(12.5% x 16,000)
Part 2
Cash dividend amounts
Feb. 15 May 15 Aug. 15 Nov. 15
Outstanding shares..........................17,000 16,000 16,000 18,000
Part 3
Capitalization of retained earnings for small stock dividend
Number of shares...............................................................................2,000
Market value per share......................................................................$ 42
Total capitalized..................................................................................$ 84,000
Part 4
Part 5
Net income
Retained earnings, beginning balance............................................$270,000
Less dividends: Feb. 15...................................................................(6,800)
May 15....................................................................(6,400)
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Chapter 13 - Accounting for Corporations
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)
= $ 250
Common stock
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
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Chapter 13 - Accounting for Corporations
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
Less equity for preferred............................... (480,000)
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
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