Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 11 Solution Manual Part 3

March 26, 2020
Problem 11-2B (Concluded)
Part 2
BALTHUS CORP.
Statement of Retained Earnings
For Year Ended December 31, 2016
Retained earnings, December 31, 2015 ............................
$2,160,000
Part 3
BALTHUS CORP.
Stockholders’ Equity Section of the Balance Sheet
December 31, 2016
Common stock$1 par value, 320,000 shares
authorized, 200,000 shares issued and outstanding ....
$ 200,000
Problem 11-3B (45 minutes)
Part 1
Explanations for each of the journal entries
Jan. 17
Declared a cash dividend of $1 per share of common stock.
($96,000 / 96,000 shares)
Feb. 5
Paid the cash dividend on common stock.
Part 2
Jan. 17
Feb. 5
Feb. 28
Mar. 14
Mar. 25
Mar. 31
Common stock ..........
$ 960,000
$ 960,000
$ 960,000
$1,080,000
$1,080,000
$1,080,000
Common stock
dividend distributable .
0
0
120,000
0
0
0
Problem 11-4B (45 minutes)
Part 1
Outstanding common shares
Feb. 15
May 15
Aug. 15
Nov. 15
Beginning balance ...........................
17,000
17,000
17,000
17,000
*(12.5% x 16,000)
Part 2
Cash dividend amounts
Feb. 15
May 15
Aug. 15
Nov. 15
Outstanding shares ..........................
17,000
16,000
16,000
18,000
Part 3
Part 4
Cost per share of treasury stock
Part 5
Net income
Retained earnings, beginning balance ................................
$270,000
Less dividends: Feb. 15 ................................................................
(6,800)
Problem 11-5B (40 minutes)
1. Market price = $90 per share (current stock exchange price given)
2. Computation of stock par values
3. Book values with no dividends in arrears
Book value per preferred share = par value (when not callable)
= $ 250
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value .......................
$ 375,000
Plus two years’ dividends in arrears* ....
60,000
Problem 11-5B (Concluded)
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,500 x $280)
$ 420,000
Plus two years’ dividends in arrears* ..........
60,000
6. Dividend allocation in total
Preferred
Common
Total
2 years’ dividends in arrears ...
$ 60,000
$ 0
$ 60,000
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 valued at historical cost, not market value.
SERIAL PROBLEM SP 11
Serial Problem SP 11, Business Solutions (25 minutes)
1a. Journal entry for issuance of common stock to Cicely
1b. Journal entry for issuance of preferred stock to Marcello
1c. Journal entry to record $86,000 borrowed from the bank
2. Evaluation of the three proposals
a. Cicely’s investment as a common shareholder would mean that
Santana would have a second person who would be an owner.
Santana has been working on her own for about 15 months, and
Serial Problem (concluded)
b. Having a preferred shareholder means that Santana’s Uncle
Marcello will not have the same voting rights as Santana. Marcello
c. The loan requires regular monthly payments, so Santana will need
to budget the $1,000 each month as a cash outflow. The loan may
3. There is no correct answer to the question of which proposal Santana
should adopt. Class discussion may indicate which proposal the class
prefers.
Reporting in Action BTN 11-1
(All shares in thousands.)
1. As of September 28, 2013, the shares of common stock issued and
outstanding are 899,213 (see balance sheet). As of September 29, 2012,
the number of shares of common stock issued and outstanding is
939,208.
The weighted-average common shares used in calculating earnings per
2. Total stockholders’ equity as of September 28, 2013 ......$123,549,000,000
3. As found on its statement of cash flows, Apple reported $10,564 million
4. Apple’s income statement reports the following
(Fiscal years) 2013
2012
2011
Comparative Analysis BTN 11-2
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share = Net income
3. Dividend yield = Annual cash dividends per share
Market value per share
4. Price-earnings ratio = Market value per share
Earnings per share
Ethics Challenge BTN 11-3
During the course of her duties, Harriet has learned information that others
might not know. If she uses this information to trade in New World
Communicating in Practice BTN 11-4
There is no set solution to this activity. Solutions will vary based on the
industry and the companies selected.
Taking It to the Net BTN 11-5
1. The balance sheet of McDonald’s shows that they have both preferred
and common stock authorized, but it has only issued common stock.
2. The preferred stock has no par value. There are 165.0 million preferred
Teamwork in Action BTN 11-6
1. The team statement should include the following:
a. When a corporation “buys back” its stock (engages in a treasury
stock acquisition), the effect on financial position is a decrease in
2. The team should establish the acquisition entry as follows
Treasury Stock, Common .........................................
13,400
Cash ................................................................
13,400
Reacquired 100 shares of $100 par value
common stock at a cost of $134 per share.
b.
Cash ..........................................................................................
15,000
Paid-In Capital, Treasury Stock ................................
1,600
Teamwork in Action (Continued)
d.
Cash ..........................................................................................
12,000
Paid-In Capital, Treasury Stock ................................
1,000
Retained Earnings ................................................................
400
Treasury Stock, Common ................................
13,400
Received $120 per share for 100 treasury
shares costing $134 per share.
3. When presenting and explaining the above entries to the team, the
following points should be made by the team members:
The similarities in all reissue entries a through e are:
The net affect of the transaction is to increase assets and equity by
Entrepreneurial Decision BTN 11-7
1.
Plan A
Plan B
Net income ..............................................................
$ 72,000
$ 72,000
Less preferred dividends ......................................
0
(10,000)
2.
Plan A
Plan B
Net income ..............................................................
$ 16,800
$ 16,800
Less preferred dividends ......................................
0
(10,000)
3. The difference between the answers for parts 1 and 2 arises from the
3.6% in part 2 for Plan A, BUT this is more than the 1.8% for Plan B.
Hitting the Road BTN 11-8
There is no formal solution for this field activity. Students often find this
assignment interesting as it highlights the relevance of their accounting
studies. Instructors also sometimes assign a particular financial news
show to watch on a certain day for the entire classthis can help
encourage a general class discussion on the topics raised.
Global Decision BTN 11-9
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share:
= (Net income Preferred dividends) / Weighted-average common shares outstanding
3. Samsung’s EPS is 197,841, and Samsung declared ₩14,300 in cash
dividends per share during fiscal year 2013. Consequently, for the

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