Chapter 11 – Reporting and Interpreting Owners’ Equity
P11–12. (continued)
Req. 2
Case A: Sole Proprietorship
Statement of Owner’s Equity
A, Capital, January 1 …………………………………………………….
$52,000
Less: Net loss ………………………………………………………………
20,000
Total ……………………………………………………………………….
32,000
Less: Withdrawals ………………………………………………………..
9,000
A, Capital, December 31 ……………………………………………….
$23,000
Case B: Partnership
Partners’ Equity
A, Capital ……………………………………………………………………
$28,000
B, Capital ……………………………………………………………………
26,000
Total Partners’ Equity ………………………………………………..
$54,000
Statement of Partners’ Equity
A
B
Total
Partners’ equity, January 1 ………………………….
$43,000
$43,000
$86,000
Deduct: Net loss …………………………..…………….
10,000
10,000
20,000
Total ……………………………………………………..
33,000
33,000
66,000
Deduct: Withdrawals …………………………………..
5,000
7,000
12,000
Partners’ Equity, December 31 …………………….
$28,000
$26,000
$54,000
Case C: Corporation
Stockholders’ Equity
Contributed capital:
Common stock, par $10, authorized 30,000 shares,
outstanding 14,000 shares ……………………………………….
$140,000
Capital in excess of par ……………………………………………..
9,000
Total contributed capital ………………………………………….
149,000
Retained earnings ………………………………………………………..
42,000
Total Stockholders’ Equity ……………………………………
$191,000
Statement of Retained Earnings
Retained earnings, balance Jan. 1 …………………………………………………..
$62,000
Less: Net loss ………………………………………………………………………………
20,000
Retained earnings, balance Dec. 31 ………………………………………………..
$42,000
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AP11–1.
Req. 1
Common Stock $1,500,000 / $1
=
1,500,000 shares
Issued Shares
1,500,000
Treasury Stock
(100,000)
Shares Outstanding
1,400,000
Chapter 11 – Reporting and Interpreting Owners’ Equity
AP11–2.
(a)
Cash (30,000 shares x $40) + (5,000 shares x $26) (+A) …..
1,330,000
Common stock, (30,000 shares x $40) (+SE) ……………….
1,200,000
Preferred stock (5,000 shares x $5) (+SE) ……………………
25,000
Capital in excess of par, preferred
(5,000 shares x $21) (+SE) ………………………………………
105,000
Sold stock.
(b)
Cash (2,000 shares x $32) (+A) ……………………………………..
64,000
Preferred stock (2,000 shares x $5) (+SE) ……………………
10,000
Contributed capital in excess of par, preferred
($64,000 – $10,000) (+SE) …………………………..…………….
54,000
Sold preferred stock.
(c)
Treasury stock, common (3,000 shares x $38) (+XSE, –SE)
114,000
Cash (-A) …………………………………………………………………
114,000
Purchased treasury stock, common, at $38 per share.
AP11–3.
Stockholders’ Equity
Contributed capital:
Common stock, par $5, authorized 1,000,000 shares; issued 700,000
shares, of which 25,000 shares are held as treasury stock ………………….
$ 3,500,000
Capital in excess of par, common …………………………..………………………….
34,300,000
Total contributed capital ………………………………………………………………..
37,800,000
Retained earnings ………………………………………………………………………………
429,000
Total …………………………..………………………………………………………………
38,229,000
Less: Treasury stock held (25,000 shares x $50) …………………………………
(1,250,000)
Total stockholders’ equity …………………………………………………………………
$36,979,000
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AP11–4.
Req. 1
Case A—Preferred is noncumulative (total amount to distribute, $25,000):
Preferred
(21,000
shares)
Common
(500,000
shares)
Total
Preferred ($210,000 x 8%) ……………………………………..
$16,800
$16,800
Balance to common ($25,000 – $16,800) …………………
$8,200
8,200
$16,800
$8,200
$25,000
Per share …………………………………………………………….
$.80
$.016
Preferred:
Arrears ($210,000 x 8% x 2 years = $33,600) ………..
$25,000
$25,000
Current year ($210,000 x 8%) ……………………………..
$25,000
–0–
$25,000
Per share …………………………………………………………….
$1.19
$ –0–
Preferred:
Arrears ($210,000 x 8% x 2 years) ……………………….
$33,600
$33,600
Current year ($210,000 x 8%) ……………………………..
16,800
16,800
Balance to common ($75,000 – $50,400) …………………
$24,600
24,600
$50,400
$24,600
$75,000
Per share …………………………………………………………….
$2.40
$.049
Req. 2
Schedule of Comparative Differences (with comments)
Item
Amount of Dollar Increase (Decrease)
Cash Dividend – Case C
Stock Dividend
Assets
$75,000 decrease
No assets were disbursed.
Liabilities
Current liabilities increased
$75,000 on declaration date and
decreased $75,000 on payment
date. The net effect is zero.
No effect – no contractual liability
was created.
Stockholders’
equity
$75,000 decrease (debit to
retained earnings).
No effect on total stockholders’
equity. Decreased retained
earnings and increased common
stock by same amount.
Chapter 11 – Reporting and Interpreting Owners’ Equity
AP11–4. (continued)
Summary comment:
(1) A cash dividend decreases assets and stockholders’ equity by the amount of the
dividend because resources were disbursed.
(2) A stock dividend does not change total assets or total stockholders’ equity because
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Case A
Req. 1
Preferred stock dividend — $2,160 = 3,000 shares x $8 x 9%
Common stock dividend—$7,840 = $10,000 – $2,160
Req. 2
35,000 shares (40,000 shares issued – 5,000 shares treasury stock)
Req. 3
is adjusted. After a 2-for-1 stock split, the par value for Rogers stock would be $5 per
share.
Case B
Working Capital
Remain the same
Decrease
Remain the same
Remain the same
Case C
Req. 1
$1,000,000 x 0.6139 ……………………………………………..
$ 613,900
$50,000 x 7.7217 ………………………………………………….
386,085
Issue price …………………………………………………………..
$999,985
(at par)*
*$15 rounding error—issue price is par value, or $1,000,000
Chapter 11 – Reporting and Interpreting Owners’ Equity
Comprehensive Review Problem (continued)
Req. 2
$1,000,000 x 0.6756 ……………………………………………..
$ 675,600
$50,000 x 8.1109 ………………………………………………….
405,545
Issue price …………………………………………………………..
$1,081,145
Req. 3
$1,000,000 x 0.5584 ……………………………………………..
$ 558,400
$50,000 x 7.3601 ………………………………………………….
368,005
Issue price …………………………………………………………..
$ 926,405
Case D
Req. 1
$1,000,000 x 0.4564
$ 50,000 x 13.5903
Cash (+A) ……………………………………………………………………
Bonds Payable (+L) ………………………………………………….
Cash (+A) ……………………………………………………………………
Capital in excess of par, common stock (+SE) ………………
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CP11–1.
Req. 1 There are 55,718 (thousand) shares in treasury stock.
CP11–2.
Req. 1 200,000,000 shares authorized; 144,633,007 shares issued and
Chapter 11 – Reporting and Interpreting Owners’ Equity
CP11–3.
Req.1
The stock price of a company will immediately adjust downward. Each share is worth
less after a split because there are more shares outstanding. Some companies believe
that higher stock prices might make the stock less attractive to some investors. By
retail store. Often these investors are retirees that use the income stream from
Chapter 11 – Reporting and Interpreting Owners’ Equity
CONTINUING CASE
CC11–1
Req. 1
Treasury Stock (+XSE, -SE)) …………………………..…………….
100,000,000
Cash (-A) ………………………………………………………………..
100,000,000
Req. 2
August 2
Retained earnings (-SE) ………………………………………………..
7,872,000
Dividend payable (+L) ………………………………………………..
7,872,000
August 13
No entry
August 29
Dividend payable (-L) ……………………………………………………
7,872,000
Cash (-A) …………………………………………………………………
7,872,000
49.2 million shares (outstanding) x $0.16 = $7,872,000