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.
2.
A
3.
4.
E
5.
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.