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Exercise 13-10 (25 minutes)
1. (a)
Oct. 11
Treasury Stock (5,000 x $25) ................................
125,000
Cash ..........................................................................
125,000
Purchased treasury stock.
(b)
Nov. 1
Cash (1,000 x $31) .........................................................
31,000
Treasury Stock (1,000 x $25) ................................
25,000
Paid-In Capital, Treasury Stock ..............................
6,000
Reissued treasury stock at a price exceeding cost.
(c)
Nov. 25
Cash (4,000 x $20) .........................................................
80,000
Paid-In Capital, Treasury Stock ................................
6,000
Retained Earnings .........................................................
14,000
Treasury Stock (4,000 x $25) ................................
100,000
Reissued treasury stock at a price less than cost.
2. Changes to the equity section include the following
(i) The common stock account description line will change. After the
treasury stock purchase, it should read:
Common stock⎯$10 par value; 72,000 shares
authorized and issued; 5,000 shares in treasury .................
$720,000
The dollar balance of this account does not change with a treasury
stock purchase.
(ii) The descriptions and dollar amounts for Paid-In Capital in Excess of
Par Value, Common Stock will not change.
(iii) The retained earnings dollar balance will not change but its
description should change to read:
Retained earnings ($125,000 restricted for treasury stock) .............
$864,000
(iv) After the purchase, a deduction for the cost of treasury stock is
reported immediately before the total line for stockholders’ equity as:
Less cost of treasury stock .........................................................
$(125,000)
Exercise 13-10 (Concluded)
Revised equity section appears as follows
Common stock⎯$10 par value; 72,000 shares authorized
and issued; 5,000 shares in treasury .................................................
$ 720,000
Paid-in capital in excess of par value, Common stock ........................
216,000
Retained earnings, $125,000 restricted by treasury stock ..................
864,000
Total .........................................................................................................
1,800,000
Less cost of treasury stock ................................................................
(125,000)
Total stockholders’ equity ................................................................
$1,675,000
Exercise 13-11 (15 minutes)
Amos Company
Statement of Retained Earnings
For Year Ended December 31, 2013
Retained earnings, December 31, 2012, as previously reported ....
$1,375,000
Prior period adjustment
Depreciation expense not recorded in 2011 (net of $4,500 in
Income taxes) ..............................................................................
($55,500)
Retained Earnings, December 31, 2012, as adjusted .....................
1,319,500
Plus net income ..................................................................................
126,000
Less dividends ...................................................................................
(43,000)
Retained earnings, December 31, 2013 ............................................
$1,402,500
Exercise 13-12 (25 minutes)
1. Net income .....................................................................................
$2,700,000
Less preferred dividends ............................................................
(388,020)
Net income available to common stockholders .......................
$2,311,980
2. Net income available to common stockholders .......................
$2,311,980
Divided by weighted-average outstanding shares ...................
678,000
Basic earnings per share ............................................................
$3.41
Exercise 13-13 (30 minutes)
1. Net income ......................................................................................
$960,000
Less preferred dividends ............................................................
(120,000)
Net income available to common stockholders .......................
$840,000
2. Net income available to common stockholders ....................
$840,000
Divided by weighted-average outstanding shares ...................
400,000
Basic earnings per share ............................................................
$ 2.10
Exercise 13-14 (15 minutes)
Stock
Market Value
per Share
Divided
by
Earnings
per Share
Price-Earnings
Ratio
1..............
$176.40
$12.00
=
14.7
2..............
96.00
10.00
=
9.6
3..............
93.75
7.50
=
12.5
4..............
250.00
50.00
=
5.0
Analysis: Stocks with PE ratios less than about 5 to 8 are likely viewed as
Exercise 13-15 (15 minutes)
Dividend yield
1. $16.06 / $220.00 = 7.3%
Exercise 13-16 (20 minutes)
1.
Total stockholders’ equity .............................................
$1,585,000
Less equity applicable to preferred shares
Call price ($30 x 10,000) ...............................................
$300,000
Cumulative dividends in arrears (none) .....................
0
(300,000)
Equity applicable to common shares ...........................
$1,285,000
Book value of preferred stock ($300,000/10,000) ........
$ 30.00
Book value of common stock ($1,285,000/80,000) ......
$ 16.06
2.
Total stockholders’ equity .............................................
$1,585,000
Less equity applicable to preferred shares
Call price ($30 x 10,000) ...............................................
$300,000
Cumulative dividends in arrears (3 x 6% x $250,000) ..
45,000
(345,000)
Equity applicable to common shares ...........................
$1,240,000
Book value of preferred stock ($345,000/10,000) ........
$ 34.50
Book value of common stock ($1,240,000/80,000) ......
$ 15.50
Exercise 13-17 (20 minutes)
1. Share capital → Common stock
2.
Cash ..........................................................................
615
Share Capital (at Par Value) ..............................
484
Share Premium ..................................................
131
Issued common stock at premium for cash.
Exercise 13-18 (40 minutes)
Part 1
Jan. 2
Treasury Stock, Common .............................................
75,000
Cash ..........................................................................
75,000
Purchased treasury stock (3,000 x $25).
Jan. 7
Retained Earnings .........................................................
40,500
Common Dividend Payable ................................
40,500
Declared $1.50
dividend per share on 27,000 outstanding shares.
Feb. 28
Common Dividend Payable ..........................................
40,500
Cash ..........................................................................
40,500
Paid cash dividend.
July 9
Cash* ...............................................................................
36,000
Treasury Stock, Common** ................................
30,000
Paid-In Capital, Treasury Stock*** .........................
6,000
Reissued treasury stock.
*(1,200 x $30) **(1,200 x $25) ***(1,200 x $5)
Aug. 27
Cash* ...............................................................................
30,000
Paid-In Capital, Treasury Stock ................................
6,000
Retained Earnings .........................................................
1,500
Treasury Stock, Common** ................................
37,500
Reissued treasury stock.
*(1,500 x $20) **(1,500 x $25)
Sept. 9
Retained Earnings .........................................................
59,400
Common Dividend Payable ................................
59,400
Declared $2 dividend on 29,700 outstanding shares.
Oct. 22
Common Dividend Payable ..........................................
59,400
Cash ..........................................................................
59,400
Paid cash dividend.
Dec. 31
Income Summary ...........................................................
52,000
Retained Earnings ...................................................
52,000
Closed Income Summary account.
Exercise 13-18 (Concluded)
Part 2
ALEXANDER CORPORATION
Statement of Retained Earnings
For Year Ended December 31, 2014
Retained earnings, December 31, 2013 ...........................
$340,000
Plus net income ................................................................
52,000
392,000
Less: Cash dividends declared ........................................
(99,900)
Treasury stock reissuances* ..................................
(1,500)*
Retained earnings, December 31, 2014 ...........................
$290,600
*From August 27 transaction of reissuance of treasury shares.
Part 3
ALEXANDER CORPORATION
Stockholders’ Equity Section of the Balance Sheet
December 31, 2014
Common stock⎯$25 par value, 50,000 shares
authorized, 30,000 shares issued and outstanding;
300 shares in treasury ....................................................
$ 750,000
Paid-in capital in excess of par value, common stock ...
50,000
Retained earnings (from part 2) ............................................
290,600
Less cost of treasury stock ..............................................
(7,500)
Total stockholders’ equity ................................................
$1,083,100
PROBLEM SET A
Problem 13-1A (30 minutes)
Part 1
a. To record sale of 10,000 ($250,000/$25 per share) shares of $25 par
value common stock for $30 ($300,000/10,000 shares) per share.
($50,000/$25) shares of $25 par value common stock at $40 per share.
d. To record sale of 3,000 ($75,000/$25 per share) shares of $25 par
value common stock for $40 ($120,000/3,000 shares) per share.
Part 2
Number of outstanding shares
Issued in (a) .......................................
10,000
Issued in (b) .......................................
5,000
Issued in (c) .......................................
2,000
Issued in (d) .......................................
3,000
Total ....................................................
20,000
Part 3
Minimum legal capital = Outstanding shares x Par value per share
= 20,000 x $25 = $500,000
Part 4
Total paid-in capital from common stockholders
From transaction (a) ........................
$300,000
From transaction (b) ........................
150,000
From transaction (c) ........................
80,000
From transaction (d) ........................
120,000
Total paid-in capital .........................
$650,000
Part 5
Book value per common share
Total stockholders’ equity (given) ...
$695,000
Outstanding shares (from Part 2) ....
20,000
Book value per common share ........
$ 34.75
($695,000 / 20,000 shares)
Problem 13-2A (60 minutes)
Part 1
Jan. 1
Treasury Stock, Common .............................................
80,000
Cash ..........................................................................
80,000
Purchased treasury stock (4,000 x $20).
Jan. 5
Retained Earnings .........................................................
72,000
Common Dividend Payable ................................
72,000
Declared $2 dividend on 36,000 outstanding shares.
Feb. 28
Common Dividend Payable ..........................................
72,000
Cash ..........................................................................
72,000
Paid cash dividend.
July 6
Cash* ...............................................................................
36,000
Treasury Stock, Common** ................................
30,000
Paid-In Capital, Treasury Stock*** .........................
6,000
Reissued treasury stock.
*(1,500 x $24) **(1,500 x $20) ***(1,500 x $4)
Aug. 22
Cash* ...............................................................................
42,500
Paid-In Capital, Treasury Stock ................................
6,000
Retained Earnings .........................................................
1,500
Treasury Stock, Common** ................................
50,000
Reissued treasury stock.
*(2,500 x $17) **(2,500 x $20)
Sept. 5
Retained Earnings .........................................................
80,000
Common Dividend Payable ................................
80,000
Declared $2 dividend on 40,000 outstanding shares.
Oct. 28
Common Dividend Payable ..........................................
80,000
Cash ..........................................................................
80,000
Paid cash dividend.
Dec. 31
Income Summary ...........................................................
388,000
Retained Earnings ...................................................
388,000
Closed Income Summary account.
Problem 13-2A (Concluded)
Part 2
KOHLER CORPORATION
Statement of Retained Earnings
For Year Ended December 31, 2014
Retained earnings, December 31, 2013 ...........................
$270,000
Plus net income ................................................................
388,000
658,000
Less: Cash dividends declared ........................................
(152,000)
Treasury stock reissuances ...................................
(1,500)
Retained earnings, December 31, 2014 ...........................
$504,500
Part 3
KOHLER CORPORATION
Stockholders’ Equity Section of the Balance Sheet
December 31, 2014
Common stock⎯$10 par value, 100,000 shares
authorized, 40,000 shares issued and outstanding .....
$400,000
Paid-in capital in excess of par value, common stock ..
60,000
Retained earnings (from part 2) ............................................
504,500
Total stockholders’ equity ................................................
$964,500
Problem 13-3A (45 minutes)
Part 1
Explanations for each of the journal entries
Oct. 2
Declared a cash dividend of $2 per share of common stock.
($60,000 / 30,000 shares)
Oct. 25
Paid the cash dividend on common stock.
Oct. 31
Declared a 10% stock dividend when the market value is $25 per
share. ($36,000/$12 par = 3,000 shares = 10% of 30,000 shares;
$75,000/3,000 shares = $25 per share)
Nov. 5
Distributed the common stock dividend.
Dec. 1
Executed a 3-for-1 stock split. ($12 par / $4 par = 3-for-1 ratio)
Dec. 31
Closed the Income Summary account to Retained Earnings.
Part 2
Oct. 2
Oct. 25
Oct. 31
Nov. 5
Dec. 1
Dec. 31
Common stock .................
$360,000
$360,000
$360,000
$396,000
$396,000
$396,000
Common stock
dividend distributable ..
0
0
36,000
0
0
0
Paid-in capital in
excess of par ...................
90,000
90,000
129,000
129,000
129,000
129,000
Retained earnings ............
260,000
260,000
185,000
185,000
185,000
395,000
Total equity .........................
$710,000
$710,000
$710,000
$710,000
$710,000
$920,000
Problem 13-4A (45 minutes)
Part 1
Outstanding common shares
Jan. 5
Apr. 5
July 5
Oct. 5
Beginning balance .........................
40,000
40,000
40,000
40,000
Less treasury stock (Mar. 20) ........
(3,000)
(3,000)
(3,000)
Plus dividend shares (July 31)* .......
______
______
______
7,400
Outstanding shares ........................
40,000
37,000
37,000
44,400
*(20% x 37,000)
Part 2
Cash dividend amounts
Jan. 5
Apr. 5
July 5
Oct. 5
Outstanding shares ......................
40,000
37,000
37,000
44,400
Dividend per share .......................
$ 0.50
$ 0.50
$ 0.50
$ 0.50
Total dividend ...............................
$20,000
$18,500
$18,500
$22,200
Part 3
Capitalization of retained earnings for small stock dividend
Number of shares ........................................................................
7,400
Market value per share ................................................................
$12
Total capitalized ...........................................................................
$ 88,800
Part 4
Cost per share of treasury stock
Total amount paid ........................................................................
$ 30,000
Shares purchased .......................................................................
3,000
Cost per share .............................................................................
$ 10
Part 5
Net income
Retained earnings, beginning balance ......................................
$320,000
Less dividends: Jan. 5 ..............................................................
(20,000)
Apr. 5 ..............................................................
(18,500)
July 5 ..............................................................
(18,500)
July 31 .............................................................
(88,800)
Oct. 5 ..............................................................
(22,200)
Total before net income ..............................................................
$152,000
Plus net income ...........................................................................
?
Retained earnings, ending balance ...........................................
$400,000
Therefore, net income = $248,000
Problem 13-5A (40 minutes)
1. Market price = $85 per share (current stock exchange price given)
2. Computation of par values of stock
3. Book values with no dividends in arrears
Common stock
Total equity ................................................
$280,000
Less equity for preferred ..........................
(50,000)
Common stock equity ...............................
$230,000
Number of outstanding shares ................
4,000
Book value per common share ................
$ 57.50
($230,000 / 4,000 shares)
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value ...........................
$ 50,000
Plus two years’ dividends in arrears* .......
5,000
Preferred equity ...........................................
$ 55,000
*2 years’ dividends = 2 x ($50,000 x 5%) = $5,000
Number of outstanding shares ..................
1,000
Book value per preferred share .................
$ 55.00
($55,000 / 1,000 shares)
Common stock
Total equity ..................................................
$280,000
Less equity for preferred ............................
(55,000)
Common stock equity ................................
$225,000
Number of outstanding shares ..................
4,000
Book value per common share ..................
$ 56.25
($225,000/4,000 shares)
Problem 13-5A (Concluded)
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,000 x $55) .......
$ 55,000
Plus two years’ dividends in arrears* .........
5,000
Preferred equity .............................................
$ 60,000
*2 years’ dividends = 2 x ($50,000 x 5%) = $5,000
Number of outstanding shares ....................
1,000
Book value per preferred share ...................
$ 60.00
($60,000 / 1,000 sh.)
Common stock
Total equity ....................................................
$280,000
Less equity for preferred ..............................
(60,000)
Common stock equity ...................................
$220,000
Number of outstanding shares ....................
4,000
Book value per common share ....................
$ 55.00
($220,000 / 4,000 sh.)
6. Dividend allocation in total
Preferred
Common
Total
2 years’ dividends in arrears ...........
$ 5,000
$ 0
$ 5,000
Current year dividends .....................
2,500
2,500
Remainder to common .....................
.
4,000
4,000
Totals ..................................................
$ 7,500
$ 4,000
$11,500
Dividends per share for the common stock
7. Equity represents the residual interest of owners in the assets of the
business after subtracting claims of creditors. With few exceptions,
these assets and liabilities are reported at historical cost, not market
PROBLEM SET B
Problem 13-1B (30 minutes)
Part 1
a. To record sale of 3,000 ($3,000/$1 per share) shares of $1 par value
common stock for $40 ($120,000/3,000) per share.
issuing a note for $18,300.
d. To record sale of 1,200 shares of $1 par value common stock for $50
per share.
Part 2
Number of outstanding shares
Issued in (a) ..........................................
3,000
Issued in (b)..........................................
1,000
Issued in (c) ..........................................
800
Issued in (d)..........................................
1,200
Total ......................................................
6,000
Part 3
Minimum legal capital = Outstanding shares x Par value per share
= 6,000 x $1 = $6,000
Part 4
Total paid-in capital from common stockholders
From transaction (a) ............................
$120,000
From transaction (b) ............................
40,000
From transaction (c) ............................
40,000
From transaction (d) ............................
60,000
Total paid-in capital .............................
$260,000
Part 5
Book value per common share
Total stockholders’ equity (given) .....
$283,000
Outstanding shares (from 2) ..............
6,000
Book value per common share ..........
$ 47.17
($283,000 / 6,000 shares)
Problem 13-2B (60 minutes)
Part 1
Jan. 10
Treasury Stock, Common .............................................
480,000
Cash ..........................................................................
480,000
Purchased treasury stock (40,000 x $12).
Mar. 2
Retained Earnings .........................................................
240,000
Common Dividend Payable ................................
240,000
Declared $1.50 dividend on 160,000 outstanding shares.
Mar. 31
Common Dividend Payable ..........................................
240,000
Cash ..........................................................................
240,000
Paid cash dividend.
Nov. 11
Cash* ...............................................................................
312,000
Treasury Stock, Common** ................................
288,000
Paid-In Capital, Treasury Stock*** ..........................
24,000
Reissued treasury stock.
*(24,000 x $13) **(24,000 x $12) ***(24,000 x $1)
Nov. 25
Cash* ...............................................................................
152,000
Paid-In Capital, Treasury Stock ................................
24,000
Retained Earnings .........................................................
16,000
Treasury Stock, Common** ................................
192,000
Reissued treasury stock.
*(16,000 x $9.50) **(16,000 x $12)
Dec. 1
Retained Earnings .........................................................
500,000
Common Dividend Payable ................................
500,000
Declared $2.50 dividend on 200,000 outstanding shares.
Dec. 31
Income Summary ...........................................................
1,072,000
Retained Earnings ...................................................
1,072,000
Closed Income Summary account.
