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Chapter 13 - Accounting for Corporations
SERIAL PROBLEM — SP 13
Serial Problem — SP 13, Business Solutions (25 minutes)
1a. Journal entry for issuance of common stock to Cicely
Cash.................................................................................86,000
Common Stock......................................................... 86,000
Issuance of common stock.
1b. Journal entry for issuance of preferred stock to Marcello
Borrowed $86,000 on a 10-year, 7% note payable
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
may not wish to have a second person who may have authority to
until a later time.
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
prepared to pay $6,020 ($86,000 x 7%) in dividends each year. This
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Chapter 13 - Accounting for Corporations
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
be riskier because it does require regular payments. Interest on the
3. There is no correct answer to the question of which proposal Santana
Reporting in Action — BTN 13-1
(All shares in thousands.)
1. As of September 28, 2013, the shares of common stock issued and
939,208.
The weighted-average common shares used in calculating earnings per
share are disclosed on its statement of income. At September 28, 2013,
the basic weighted-average shares were 925,331. At September 29,
2012, the basic weighted-average shares were 934,818.
2. Total stockholders’ equity as of September 28, 2013...... $123,549,000,000
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Chapter 13 - Accounting for Corporations
3. As found on its statement of cash flows, Apple reported $10,564 million
4. Apple’s income statement reports the following
(Fiscal years) 2013 2012 2011
Basic earnings per common share.................. $40.03 $44.64 $28.05
5. Apple’s consolidated balance sheet reports no shares of treasury stock
as of September 28, 2013, or September 29, 2012.
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Chapter 13 - Accounting for Corporations
Comparative Analysis — BTN 13-2
1. Book value per common share =
Apple’s book value per common share
2. Earnings per share =
3. Dividend yield =
Apple’s dividend yield: $11.40 / $477.25 = 2.39%
Google’s dividend yield: $0.00 / $560.92 = 0.00%
4. Price-earnings ratio =
Apple’s price-earnings ratio: $477.25 / $40.03 = 11.92
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Chapter 13 - Accounting for Corporations
Ethics Challenge — BTN 13-3
During the course of her duties, Harriet has learned information that others
might not know. If she uses this information to trade in New World
Communicating in Practice — BTN 13-4
There is no set solution to this activity. Solutions will vary based on the
industry and the companies selected.
Taking It to the Net — BTN 13-5
1. The balance sheet of McDonald’s shows that they have both preferred
and common stock authorized, but it has only issued common stock.
2. The preferred stock has no par value. There are 165.0 million preferred
3. In 2013, the financing section of the statement of cash flows shows that
McDonald’s paid $1,777.8 million to purchase treasury stock.
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Chapter 13 - Accounting for Corporations
Teamwork in Action — BTN 13-6
1. The team statement should include the following:
a. When a corporation “buys back” its stock (engages in a treasury
stock acquisition), the effect on financial position is a decrease in
is a contra equity account that decreases equity.
b. Reasons for “buybacks”:
to use shares to acquire another corporation.
2. The team should establish the acquisition entry as follows
Treasury Stock, Common......................................... 13,400
Cash..................................................................... 13,400
Reacquired 100 shares of $100 par value
common stock at a cost of $134 per share.
Each member should prepare one of the following reissue entries:
c. Cash...........................................................................................12,000
Paid-In Capital, Treasury Stock...............................................1,400
Treasury Stock, Common.................................................. 13,400
Received $120 per share for 100 treasury
shares costing $134 per share.
Teamwork in Action (Continued)
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Chapter 13 - Accounting for Corporations
d. Cash...........................................................................................12,000
Paid-In Capital, Treasury Stock...............................................1,000
Retained Earnings....................................................................400
Treasury Stock, Common.................................................. 13,400
Received $120 per share for 100 treasury
shares costing $134 per share.
3. When presenting and explaining the above entries to the team, the
following points should be made by the team members:
The similarities in all reissue entries a through e are:
The net affect of the transaction is to increase assets and equity by
the amount received on reissue.
The differences in reissue entries b through e are:
(b) Reissuing above cost creates additional Paid-In Capital.*
(c) Reissuing below cost reduces existing Paid-In Capital.*
*Refers to the Paid-In Capital, Treasury Stock account.
Entrepreneurial Decision — BTN 13-7
1.
Plan A Plan B
Net income.............................................................. $ 72,000 $ 72,000
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Chapter 13 - Accounting for Corporations
Less preferred dividends....................................... 0 (10,000)
Net income for common stockholders................. $ 72,000 $ 62,000
Founder’s return on equity.................................... 15.4% 16.5%
2.
Plan A Plan B
Net income.............................................................. $ 16,800 $ 16,800
Less preferred dividends....................................... 0 (10,000)
Net income for common stockholders................. $ 16,800 $ 6,800
Founder’s share of common equity..................... 80% 100%
3. The difference between the answers for parts 1 and 2 arises from the
percent of return generated with the assets invested in the corporation.
3.6% in part 2 for Plan A, BUT this is more than the 1.8% for Plan B.
These results indicate that the 8% dividend rate on the preferred stock
is advantageous to the founder as long as the rate of return on the
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Chapter 13 - Accounting for Corporations
Hitting the Road — BTN 13-8
There is no formal solution for this field activity. Students often find this
assignment interesting as it highlights the relevance of their accounting
Global Decision — BTN 13-9
1. Book value per common share =
Samsung’s book value per common share = ₩149,896,543 / 130.915
2. Earnings per share:
= (Net income – Preferred dividends) / Weighted-average common shares outstanding
3. Samsung’s EPS is ₩197,841, and Samsung declared 14,300 in cash₩
dividends per share during fiscal year 2013. Consequently, for the
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