• The first McDonald’s hamburger stand was located in San Bernardino, CA.
• Ray Kroc convinced the McDonald brothers to expand their business and open several new restaurants so
• Dividend policy, legality, and financial feasibility.
2. Deferred income taxes arise because tax deductions or income items subject to tax are not reported in the
3. (a) the date on which the board of directors declares the dividend (date of declaration),
4. A cash dividend reduces the cash account and no other asset or liability, thus reducing total stockholders’
5. Retained Earnings is debited and an account such as Stock Dividend Distributable is credited for the par
6. Common Stock Dividend Distributable is classified as part of stockholders’ equity.
Discussion Questions
CHAPTER 21
CORPORATE EARNINGS AND CAPITAL TRANSACTIONS
Chapter Opener: Thinking Critically
Financial factors might include income level and long-term obligations. Nonfinancial factors might include
personal experience with the company or products.
Fast Facts
Managerial Implications: Thinking Critically
8. Extraordinary items are shown at the bottom of the income statement, following Income from Operations,
After Income Taxes.
9. A stock split has no effect on retained earnings. The number of shares is simply increased. If the stock has
11. The appropriation probably will be transferred back to the Retained Earnings account by a debit to the
appropriations account and a credit to Retained Earnings. However, the transfer requires official action.
13. Treasury stock is reported at cost. It is deducted from the total of all other capital.
Discussion Questions (continued)
EXERCISE 21.1
$50,000 x 15% = $7,500
EXERCISE 21.2
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1 1
2 2013 2
EXERCISE 21.3
a. Loss of $40,000. Debit Retained Earnings for $40,000, Credit Income Summary $40,000.
CREDITDEBIT DATE
Tax for year = 94,400
GENERAL JOURNAL
DESCRIPTION
Adjusting Entry
EXERCISE 21.5
POST.
REF.
1 2013 1
2 Oct. 15 Retained Earnings 150 0 0 0 00 2
8 Paid dividend 8
EXERCISE 21.6
POST.
REF.
1 2013 1
2 Aug. 13 Retained Earnings 250 0 0 0 00 2
3 Common Stock Dividend Distributable 5000000 3
9 Distribution of stock dividend 9
EXERCISE 21.7
POST.
REF.
1 2013 1
2 Dec. 1 On this date the board of directors declared a 2-for-1 2
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PAGE
EXERCISE 21.8
PAGE
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REF.
1 2013 1
EXERCISE 21.9
PAGE
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REF.
1 2013 1
2 Nov. 1 Retained Earnings Appropriated for Contingencies 17800000 2
6 6
EXERCISE 21.10
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REF.
1 2013 1
4 Appraised value of plant site donated by city 4
5 5
DATE DESCRIPTION DEBIT CREDIT
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
GENERAL JOURNAL
EXERCISE 21.11
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EXERCISE 21.12
Stockholders’ Equity
Paid-in Capital
Common Stock ($25 par, authorized 8,000 shares)
Issued and Outstanding, 6,000 shares 15000000
Paid-in Capital in Excess of Par 800000
First Company
Balance Sheet (Partial)
December 31, 2013
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.1A
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1 2013 1
12 Dividends Payable—Common 10 0000012
13 Declared dividend of $0.25 per share on 13
14 40,000 shares, payable June 2 to holders 14
15 of record May 20 15
16 16
27 Quarterly income tax deposit 27
28 28
29 Nov. 2 Retained Earnings 10 0 0 0 00 29
30 Dividends Payable—Common 1000000 30
31 Declared dividend of $0.25 per share on 31
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.1A (continued)
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1 2013 1
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.2A
Bruin Corporation
Worksheet
Year Ended December 31, 2013
TRIAL BALANCE ADJUSTMENTS
PROBLEM 21.2A (continued)
46 5 7 0 00 1
149 8 0 0 00 2
800000 13
6 5 00 14
160 0 0 0 00 15
16 0 0 0 00 16
240 0 0 0 00 17
69 2 6 5 00 28
100 0 0 0 00 105 0 0 0 00 29
1,054 2 6 5 00 1,205 5 5 0 00 951 3 7 0 00 800 0 8 5 00 30
151 2 8 5 00 151 2 8 5 00 31
1,205 5 5 0 00 1,205 5 5 0 00 951 3 7 0 00 951 3 7 0 00 32
INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT
PROBLEM 21.2A (continued)
Year Ended December 31, 2013
Bruin Corporation
Income Statement
PROBLEM 21.2A (continued)
Equipment 250 0 0 0 00
Less Accumulated Depreciation—Equipment 50 0 0 0 00 20000000
Total Property, Plant, and Equipment 55000000
Total Assets 84937000
5,000 shares authorized)
Issued and Outstanding, 1,600 shares 160 0 0 0 00
Paid-in Capital in Excess of Par Value 16 0 0 0 00 17600000
Common Stock ($10 par value, 200,000 shares authorized)
Bruin Corporation
Balance Sheet
December 31, 2013
Assets
Liabilities and Stockholders’ Equity
PROBLEM 21.2A (continued)
Retained Earnings
Balance, January 1, 2013 168 8 0 0 00
Add Net Income for Year 151 2 8 5 00
Balance Sheet (continued)
December 31, 2013
Bruin Corporation
PROBLEM 21.2A (continued)
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1 1
2 2013 (a) 2
3 Dec. 31 Income Summary 100 00000 3
11 General Expenses (Control) 250000 11
12 Accumulated Depreciation—Buildings 12 50000 12
13 13
14 (c) 14
15 31 Selling Expenses (Control) 17 00000 15
16 General Expenses (Control) 800000 16
17 Accumulated Depreciation—Equipment 2500000 17
18 18
19 (d) 19
30 30
31 31
Adjusting Entries
GENERAL JOURNAL 6
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.2A (continued)
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1 1
2 2013 2
3 Dec. 31 Sales (Net) 1,100 55000 3
4 Income Summary 1,100 55000 4
5 5
6 31 Income Summary 95426500 6
Closing Entries
GENERAL JOURNAL 7
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.3A
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REF.
1 2013 1
12 Dividends Payable—Preferred 3000 00 12
13 Declared 5% dividend on preferred stock, 13
14 payable Jan. 15, 2014, to holders of record 14
15 Dec. 31, 2013 15
16 16
27 Jan. 15, 2014, to holders of record Dec. 31, 2013 27
28 28
29 31 Retained Earnings 381 50 0 0 0 00 29
30 Retained Earnings Appropriated for Contingencies 50 0 0 0 00 30
31 Set up appropriation 31
34 31 Retained Earnings 381 15 0 0 0 00 34
35 Income Summary 15 0 0 0 00 35
36 Close Income Summary 36
37 37
GENERAL JOURNAL 6
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.3A (continued)
ACCOUNT Retained Earnings ACCOUNT NO.
2013
Jan. 1 Balance ✔197 2 0 0 00
June 15 J6 300000 19420000
BALANCE
DEBIT CREDIT
GENERAL LEDGER
381
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
PROBLEM 21.3A (continued)
Unappropriated Retained Earnings
Balance, January 1, 2013 19720000
Deductions:
Balance, Unappropriated Retained Earnings, Dec. 31, 2013 8120000
Appropriated Retained Earnings:
Appropriated for Contingencies:
Balance, January 1, 2013 ─0─
Solomon Corporation
Statement of Retained Earnings
December 31, 2013
PROBLEM 21.4A
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1 2013 1
2 Feb. 15 Treasury Stock—Preferred 372 44 0 0 0 00 2
3 Cash 44 0 0 0 00 3
4 Repurchased 4,000 shares of preferred stock 4
15 15
16 April 1 On this date 2,000 additional shares of common stock 16
17 were issued to common shareholders as declared by 17
18 directors on March 4. 18
19 19
27 Payment of dividends on preferred 27
28 28
29 Sept. 25 Treasury Stock—Preferred 372 500000 29
30 Cash 50000030
31 Purchased 500 shares of preferred stock 31
GENERAL JOURNAL 1
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.4A (continued)
POST.
REF.
1 2013 1
2 Dec. 15 Retained Earnings 381 175000 2
3 Dividends Payable—Preferred 175000 3
4 Declared 5% dividend on preferred, payable 4
5 January 12 to holders of record December 30 5
6 6
15 Donation of land for building site 15
16 16
17 17
Closing Entry
GENERAL JOURNAL PAGE 2
DATE DESCRIPTION DEBIT CREDIT