Exercise 10-6 (LO 10-2, 10-3, 10-4)
January 2, 2015 Debit Credit
Cash (100,000 x $35) 3,500,000
Common Stock (100,000 x $1) 100,000
February 6, 2015
Cash (3,000 x $11) 33,000
Preferred Stock (3,000 x $10) 30,000
September 10, 2015
Treasury Stock (11,000 shares x $40) 440,000
December 15, 2015
Cash (5,500 shares x $45) 247,500
Treasury Stock (5,500 shares x $40) 220,000
Exercise 10-7 (LO 10-7)
Finishing Touches
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2015
Stockholders’ equity:
Preferred stock, $10 par value $ 30,000
Common stock, $1.00 par value 100,000
Additional paid-in capital 3,430,500
Total paid-in capital 3,560,500
Exercise 10-8 (LO 10-5)
March 15 Debit Credit
Dividends (210 million shares x $0.125) 26,250,000
March 30
No Entry
April 13
Dividends Payable (210 million shares x $0.125) 26,250,000
Exercise 10-9 (LO 10-2, 10-4, 10-5)
March 1, 2015 Debit Credit
Cash (65,000 x $62) 4,030,000
Common Stock (65,000 x $1) 65,000
May 10, 2015
Treasury Stock (6,000 shares x $65) 390,000
June 1, 2015
Dividends (159,000 shares x $2.00) 318,000
July 1, 2015
Dividends Payable (159,000 shares x $2.00) 318,000
October 21, 2015
Cash (3,000 shares x $70) 210,000
Treasury Stock (3,000 shares x $65) 195,000
Exercise 10-10 (LO 10-6)
Requirement 1
September 1
Stock Dividends (10,000 x 10% x $30) 30,000
Common Stock (10,000 x 10% x $1) 1,000
Requirement 2
September 1
Stock Dividends (10,000 shares x $1) 10,000
Requirement 3
• No entry is recorded for a 2-for-1 stock split, because the balance in all of the
accounts remains the same before and a%er a stock split.
Exercise 10-11 (LO 10-7)
Power Drive Corporation
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2015
Stockholders’ equity:
Common stock, $1.00 par value $ 165,000
Additional paid-in capital 9,480,000
Total paid-in capital 9,645,000
Retained earnings 3,382,000 *
Exercise 10-12 (LO 10-7)
Power Drive Corporation
Statement of Stockholders’ Equity
For the Year Ended December 31, 2015
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
Balance, January 1 $100,000 5,500,000 3,000,000 -0- $8,600,000
Issue common stock 65,000 3,965,000 4,030,000
Purchase treasury stock (390,000) (390,000)
Cash dividends (318,000) (318,000)
Exercise 10-13 (LO 10-7)
Transaction
Total
Assets
Total
Liabilities
Total
Stockholders’
Equity
Issue common stock +NE +
Issue preferred stock + NE +
Purchase treasury stock − NE −
Sale of treasury stock + NE +
Exercise 10-14 (LO 10-7)
United Apparel
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2015
Stockholders’ equity:
Preferred stock $ 3,600,000
Common stock 600,000
Additional paid-in capital 8,800,000
Total paid-in capital 13,000,000
Exercise 10-15 (LO 10-8)
Requirement 1
($ in millions) Net
Income ÷
Average
Stockholders’ Equity =
Return on
Equity
Friendly Fashions has a lower return on equity than Deckers Outdoor or Wolverine.
Requirement 2
($ in millions) Net
Income ÷
Market Value
of Equity =
Return on the
Market Value
of Equity
Friendly Fashions has a slightly higher return on the market value of equity than
Deckers Outdoor or Wolverine.
Requirement 3
($ in millions)
Net
Income ÷ Shares Outstanding =Earnings per Share
Friendly Fashions has earnings per share of $0.46. Earnings per share is not useful
for comparing earnings performance between companies because of wide
Requirement 4
($ in millions) Stock
Price ÷ Earnings Per Share =
Price-Earnings
Ratio
Friendly Fashions has a slightly lower price-earnings ratio than Deckers Outdoor
or Wolverine.
Exercise 10-16 (LO 10-8)
Requirement 1
($ in millions)
Net Income
Minus
Preferred
Dividends ÷
Average Shares
Outstanding =Earnings per Share
2014 ($308-15) ÷400 = $0.737
Requirement 2
($ in millions) Stock Price ÷ Earnings Per Share =
Price-Earnings
Ratio
2014 $10.97 ÷$0.737 = 15.04.2
Problems: Set A
Problem 10-1A (LO 10-1)
Terms
__f___ 1. Cumulative.
__d__2. Retained earnings.
__g__3. Outstanding stock.
__h__4. Limited liability.
__j__ 5. Treasury stock.
__e__ 6. Issued stock.
__i__ 7. Angel investors.
__a__ 8. Paid-in capital.
__b__9. Authorized stock.
__c__ 10. Redeemable.
Definitions
a. The amount invested by stockholders.
b. Shares available to sell.
c. Shares can be returned to the corporation at a predetermined price.
d. The earnings not paid out in dividends.
e. Shares actually sold.
f. Shares receive priority for future dividends if dividends are not paid in a
g. Shares held by investors.
i. Wealthy individuals in the business community willing to risk investment
Problem 10-2A (LO 10-2, 10-3, 10-4, 10-5)
Requirement 1
March 1, 2015 Debit Credit
Cash (1,100 x $42) 46,200
Common Stock (1,100 x $0.01) 11
May 15, 2015
Treasury Stock (400 shares x $35) 14,000
July 10, 2015
Cash (200 shares x $40) 8,000
Treasury Stock (200 shares x $35) 7,000
October 15, 2015
Cash (200 x $45) 9,000
Preferred Stock (200 x $1) 200
December 1, 2015
Dividends (5,400 shares x $0.50) 2,700
December 31. 2015
Dividends Payable (5,400 shares x $0.50) 2,700
Requirement 2
Transaction
Total
Assets
Total
Liabilities
Total
Stockholders’
Equity
Issue common stock + NE +
Purchase treasury stock – NE –
Reissue treasury stock + NE +
Problem 10-3A (LO 10-6)
Requirement 1
Before
After 100%
Stock Dividend
After 2-for-1
Stock Split
Common stock, $1 par value $ 1,100 $ 2,200 $ 1,100
Additional paid-in capital 59,000 59,000 59,000
Shares outstanding 1,100 2,200 2,200
Par value per share $1.00 $1.00 $0.50
Share price $130 $65 $65
Requirement 2
The primary reason companies declare a large stock dividend or a stock split is
Problem 10-4A (LO 10-7)
Requirement 1
6,000,000 shares = ($6,000 / $1 par value per share) in thousands (x 1,000).
Requirement 2
30,000,000 shares = ($30,000 / $1 par value per share) in thousands (x 1,000).
Requirement 3
$50 per share. The total paid-in capital for common stock is $900,000 (30,000 x
$30). Therefore, the total paid-in capital for preferred stock must be $300,000
Requirement 4
(in millions)
Retained earnings, beginning $250
+ Net income ?
– Dividends (30)
Net income for the year was $68 million.
Requirement 5
Problem 10-5A (LO 10-7)
Requirement 1
Donnie Hilfiger
Balance Sheet
(Stockholders’ Equity Section)
December 31, 2015
Stockholders’ equity:
Preferred stock, $1 par value $ 500
Common stock, $0.01 par value 51
Additional paid-in capital 131,989
Total paid-in capital 132,540
Retained earnings 38,600
Requirement 2
Donnie Hilfiger
Statement of Stockholders’ Equity
For the Year Ended December 31, 2015
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
Balance, January 1 $300 $40 $ 76,000 $30,500 $ -0- $106,840
Issue of common stock 11 46,189 46,200
Purchase of treasury stock (14,000) (14,000)
Sale of treasury stock 1,000 7,000 8,000
Issued preferred stock 200 8,800 9,000
Requirement 3
Items 1 and 2 are similar in that item 1 shows the equity balances in a column
format and item 2 shows these same balances across the bottom row. However,