PROBLEM 21.3B
PAGE
POST.
REF.
1 2013 1
12 Paid dividends on preferred 12
13 13
14 Sept. 15 Retained Earnings 381 750000 14
15 Common Stock Dividend Distributable 625000 15
16 Paid-in Capital in Excess of Stated Value—Common 125000 16
27 Declared 5% dividend on preferred and $0.50 27
28 per share on common, payable Jan. 15 to 28
29 holders of record Dec. 31 29
30 30
31 15 Retained Earnings 381 500000 31
36 31 Retained Earnings 381 600000 36
37 Income Summary 600000 37
GENERAL JOURNAL 6
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.3B (continued)
ACCOUNT Retained Earnings ACCOUNT NO.
2013
Jan. 1 Balance ✔43 0 0 0 00
June 15 J6 6 2 5 0 00 36 7 5 0 00
DESCRIPTION
POST.
REF. DEBIT
GENERAL LEDGER
381
CREDIT
BALANCE
DEBIT CREDITDATE
PROBLEM 21.3B (continued)
Unappropriated Retained Earnings
Balance, January 1, 2013 4300000
Deductions:
Appropriated Retained Earnings:
Appropriated for Equipment Acquisition:
Balance, January 1, 2013 ─0─
Add Appropriation for the Year 500000
Toy Hut Corporation
Statement of Retained Earnings
December 31, 2013
PROBLEM 21.4B
PAGE
POST.
REF.
1 2013 1
2 Feb. 1 Treasury Stock—Preferred 372 550000 2
11 11
12 Mar. 1 On this date the board of directors declared a 2-for-1 12
13 stock split and reduced stated value of common to $12.50 13
14 per share. Total outstanding shares will be 7,200 shares. 14
15 15
16 April 1 On this date 3,600 additional shares of common stock 16
27 Payment of dividends on preferred 27
28 28
29 Nov. 10 Treasury Stock—Preferred 372 10 6 0 0 00 29
30 Cash 10 6 0 0 00 30
31 Purchased 200 shares of preferred stock 31
GENERAL JOURNAL 1
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.4B (continued)
PAGE
POST.
REF.
1 2013 1
2 Dec. 17 Retained Earnings 381 425000 2
3 Dividends Payable—Preferred 4250 00 3
12 12
13 15 Land 75 0 0 0 00 13
14 Donated Capital 371 75 0 0 0 00 14
15 Donation of land for building site 15
16 16
18 31 Income Summary 45 0 0 0 00 18
19 Retained Earnings 381 45 0 0 0 00 19
20 Close Income Summary 20
21 21
22 22
GENERAL JOURNAL 2
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 21.4B (continued)
ACCOUNT 10% Preferred Stock, $50 Par ACCOUNT NO.
2013
ACCOUNT Paid-in Capital in Excess of Par Value-Preferred ACCOUNT NO.
2013
ACCOUNT Common Stock, No-Par, Stated Value, $25 ACCOUNT NO.
2013
Jan. 1 Balance ✔90 0 0 0 00
ACCOUNT Paid-in Capital in Excess of Stated Value-Common Stock ACCOUNT NO.
2013
315
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
311
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
305
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
GENERAL LEDGER
301
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
PROBLEM 21.4B (continued)
ACCOUNT Donated Capital ACCOUNT NO.
2013
ACCOUNT Treasury Stock—Preferred ACCOUNT NO.
2013
ACCOUNT Retained Earnings ACCOUNT NO.
2013
Jan. 1 Balance ✔165 4 5 0 00
Feb. 1 J1 550000 15995000
ACCOUNT Retained Earnings Appropriated for Treasury Stock ACCOUNT NO.
2013
Feb. 1 J1 550000 550000
371
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
372
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
381
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
382
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
PROBLEM 21.4B (continued)
Stockholders’ Equity
Paid-in Capital
Preferred Stock (10%, $50 par value, 20,000 shares authorized)
Issued 2,000 shares (of which 300 shares are held as treasury stock) 10000000
Paid-in Capital in Excess of Par Value—Preferred 350000 10350000
Common Stock (no-par, $12.50 stated value, 20,000 shares authorized)
Deduct Treasury Stock—Preferred 1610000
Total Stockholders’ Equity 44965000
December 31, 2013
Houston Corporation
Balance Sheet (Partial)
CRITICAL THINKING PROBLEM 21.1
2. 10,000 shares: ($750,000 − $500,000 ) ÷ $25 per share = 10,000 shares
4. 500 shares: ($90,000 − $65,000) ÷ $50 per share = 500 shares
7. $90,000: 30,000 shares × $3 per share = $90,000
CRITICAL THINKING PROBLEM 21.2
1. A board of directors may decide to declare a stock dividend rather than a cash dividend if the corporation is
2. The total book value is the same after the stock dividend as before. The book value per share decreased
from $45 to $37.50. The book value before the stock dividend = Total Stockholders’ Equity ÷ Number of
$37.50 = $540,000).
3. The book value of each share is found by dividing total stockholders’ equity by the number of shares
outstanding. Book value represents the amount of net assets associated with each share of stock. Market
$1.33 = $19,152. Rosa will receive only $48 less in cash dividends as she would have had the stock
dividend not been declared.
5. The reduction in market price does not represent a loss because the total value of the investment remains
the same: Value of Rosa’s shares prior to stock dividend = 12,000 shares × $60 per share = $720,000;
6. If Lowe Tech had maintained the same level of dividends per share ($1.60) while increasing the number of
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1. A regular corporation. Subchapter S, regular partnership, limited liability partnership, a limited liability
company.
4. Issue a stock split.
Ethical Dilemma:
It is recorded as a credit to the capital account, Donated Capital, and a debit to the asset account, Land.
Part A True-False
2. FALSE 10. TRUE
4. TRUE 12. TRUE
6. FALSE 14. FALSE
8. FALSE
Part B Completion
2. g
4. b
6. a
7. d
Part C Exercises
1. Book value before stock dividend:
2. Entry to record dividend declaration:
2013
SOLUTIONS TO PRACTICE TEST