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Exercise 11-3 (15 minutes)
1.
Cash ..................................................................................
35,000
Common Stock, $5 Par Value* ..................................
20,000
Paid-In Capital in Excess of Par Value,
Common Stock** .....................................................
15,000
Issued common stock for cash.
*4,000 shares x $5 per share = $20,000
**$35,000 - $20,000 = $15,000
2.
Organization Expenses ...................................................
40,000
Common Stock, $1 Stated Value ..............................
2,000
Paid-In Capital in Excess of Stated Value,
Common Stock ........................................................
38,000
Issued stock to promoters.
3.
Organization Expenses ...................................................
40,000
Common Stock, No-Par Value ..................................
40,000
Issued stock to promoters.
4.
Cash ...................................................................................
60,000
Preferred Stock, $50 Par Value* ................................
50,000
Paid-In Capital in Excess of Par Value,
Preferred Stock**......................................................
10,000
Issued preferred stock for cash.
*1,000 shares x $50 per share = $50,000
**$60,000 - $50,000 = $10,000
Exercise 11-4 (15 minutes)
Land ..................................................................................
45,000
Building ............................................................................
85,000
Common Stock, $7 Par Value* ..................................
49,000
Paid-In Capital in Excess of Par Value,
Common Stock ........................................................
81,000
Issued stock for land and building.
*7,000 shares x $7 per share = $49,000
**($45,000 + $85,000) – $49,000 = $81,000
Exercise 11-5 (20 minutes)
1.
a. Retained earnings
Before dividend ........................................................................
$ 660,000
$10 par value of 25,000 dividend shares................................
(250,000)
After dividend ...........................................................................
$ 410,000
Exercise 11-6 (25 minutes)
1.
Feb. 5
Retained Earnings* ........................................................
480,000
Common Stock Dividend Distributable** ..............
120,000
Paid-In Capital in Excess of Par Value,
Common Stock*** .................................................
360,000
Declared 20% common stock dividend
Shares to be issued: 60,000 shares x 20% = 12,000 shares
*12,000 shares x $40 per share = $480,000
**12,000 shares x $10 per share = $120,000
***$480,000 - $120,000 = $360,000
Feb. 28
Common Stock Dividend Distributable .......................
120,000
Common Stock, $10 Par Value ...............................
120,000
Distributed common stock dividend.
2.
Before
After
Total stockholders’ equity ........................
$1,575,000
$1,575,000
Issued and distributable shares ..............
60,000
72,000
Book value per share ................................
$ 26.250
$ 21.875
Shares owned ............................................
x 800
x 960*
Total book value of shares .......................
$ 21,000
$ 21,000
* 800 shares x 120% = 960 shares.
3.
February 5
February 28
Market value per share .............................
$ 40
$ 33.40
Shares owned ............................................
x 800
x 960
Total market value of shares owned .......
$ 32,000
$ 32,064
Exercise 11-7 (10 minutes)
1.
C
2.
A
3.
F
4.
E
5.
B
6.
D
Exercise 11-8 (30 minutes)
Non-Cumulative
Preferred
Common
2015 ($20,000 paid)
Preferred* ......................................................
$ 20,000
Commonremainder ...................................
_______
$ 0
Total for the year ..........................................
$ 20,000
$ 0
2016 ($28,000 paid)
Preferred* ......................................................
$ 28,000
Commonremainder ...................................
_______
$ 0
Total for the year ..........................................
$ 28,000
$ 0
2017 ($200,000 paid)
Preferred* ......................................................
$ 30,000
Commonremainder ...................................
_______
$170,000
Total for the year ..........................................
$ 30,000
$170,000
2018 ($350,000 paid)
Preferred* ......................................................
$ 30,000
Commonremainder ...................................
_______
$320,000
Total for the year ..........................................
$ 30,000
$320,000
2015-2018 ($598,000 paid)
_______
_______
Total for four years ......................................
$108,000
$490,000
* The holders of the noncumulative preferred stock are entitled to no more than
$30,000 of dividends in any one year (7.5% x $5 x 80,000 shares).
Exercise 11-9 (25 minutes)
Cumulative
Preferred
Common
2015 ($20,000 paid)
Preferred* ......................................................
$ 20,000
Commonremainder ...................................
_______
$ 0
Total for the year ..........................................
$ 20,000
$ 0
(Note: $10,000 in preferred stock dividends in arrears.)
2016 ($28,000 paid)
Preferredarrears from 2015 ......................
$ 10,000
Preferred* ......................................................
18,000
Commonremainder ...................................
_______
$ 0
Total for the year ..........................................
$ 28,000
$ 0
(Note: $12,000 in preferred stock dividends in arrears.)
2017 ($200,000 paid)
Preferredarrears from 2016 ......................
$ 12,000
Preferred* ......................................................
30,000
Commonremainder ...................................
_______
$158,000
Total for the year ..........................................
$ 42,000
$158,000
(Note: $0 in preferred stock dividends in arrears.)
2018 ($350,000 paid)
Preferred* ......................................................
$ 30,000
Commonremainder ...................................
_______
$320,000
Total for the year ..........................................
$ 30,000
$320,000
(Note: $0 in preferred stock dividends in arrears.)
2015-2018 ($598,000 paid)
_______
_______
Total for four years ......................................
$120,000
$478,000
* The holders of the cumulative preferred stock are entitled to no more than
$30,000 of dividends declared in any year (7.5% x $5 x 80,000 shares) plus any
dividends skipped in prior years.
Exercise 11-10 (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)
(v) Total stockholders’ equity will change from $1,800,000 to $1,675,000.
Exercise 11-10 (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 11-11 (15 minutes)
Amos Company
Statement of Retained Earnings
For Year Ended December 31, 2015
Retained earnings, December 31, 2014, as previously reported ....
$1,375,000
Prior period adjustment
Depreciation expense not recorded in 2013 (net of $4,500 in
tax benefits) .................................................................................
($55,500)
Retained Earnings, December 31, 2014, as adjusted .....................
1,319,500
Plus net income ..................................................................................
126,000
Less dividends ...................................................................................
(43,000)
Retained earnings, December 31, 2015 ............................................
$1,402,500
Exercise 11-12 (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 11-13 (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 11-14 (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
Exercise 11-15 (15 minutes)
1. $16.06 / $220.00 = 7.3%
2. $13.86 / $132.00 = 10.5%
3. $ 3.96 / $ 72.00 = 5.5%
4. $ 0.96 / $ 80.00 = 1.2%
Analysis: The yield of 1.2% on stock #4 is sufficiently low that it
Exercise 11-16 (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 11-17 (20 minutes)
1. Share capital Common stock
2.
Cash ..........................................................................
624
Share Capital (at Par Value) ..............................
484
Share Premium ..................................................
140
Issued common stock at premium for cash.
3. 2013 Retained profit = 2012 Retained profit + 2013 Income – 2013 Dividends
Exercise 11-18 (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.
