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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
Plus net income ..................................................................
1,072,000
3,232,000
Less: Cash dividends declared ........................................
(740,000)
Treasury stock reissuances ...................................
(16,000)
Retained earnings, December 31, 2016 ............................
$2,476,000
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
Paid in capital in excess of par value, common stock ...
1,400,000
Retained earnings (from part 2) .............................................
2,476,000
Total stockholders’ equity .................................................
$4,076,000
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.
Feb. 28
Declared a 12.5% stock dividend when the market value is $21 per
share. ($120,000 / $10 par = 12,000 shares = 12.5% of 96,000
shares; $252,000 / 12,000 shares = $21 per share)
Mar. 14
Distributed the common stock dividend.
Mar. 25
Executed a 2-for-1 stock split. ($10 par / $5 par = 2-for-1 ratio)
Mar. 31
Closed the Income Summary account to Retained Earnings.
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
Paid-in capital in
excess of par ..............
384,000
384,000
516,000
516,000
516,000
516,000
Retained earnings .....
1,504,000
1,504,000
1,252,000
1,252,000
1,252,000
1,972,000
Total equity ................
$2,848,000
$2,848,000
$2,848,000
$2,848,000
$2,848,000
$3,568,000
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
Less treasury stock (Mar. 2) ............
(1,000)
(1,000)
(1,000)
Plus dividend shares (Oct. 4)* .........
______
______
______
2,000
Outstanding shares ..........................
17,000
16,000
16,000
18,000
*(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
Dividend per share ...........................
$ 0.40
$ 0.40
$ 0.40
$ 0.40
Total dividend ................................
$6,800
$6,400
$6,400
$7,200
Part 3
Capitalization of retained earnings for small stock dividend
Number of shares ................................................................
2,000
Market value per share ................................................................
$ 42
Total capitalized ................................................................
$ 84,000
Part 4
Cost per share of treasury stock
Total amount paid ................................................................
$ 40,000
Shares purchased ................................................................
1,000
Cost per share ................................................................
$ 40
Part 5
Net income
Retained earnings, beginning balance ................................
$270,000
Less dividends: Feb. 15 ................................................................
(6,800)
May 15 ................................................................
(6,400)
Aug. 15 ................................................................
(6,400)
Oct. 4................................................................
(84,000)
Nov. 15 ................................................................
(7,200)
Total before net income................................................................
$159,200
Plus net income ................................................................
?
Retained earnings, ending balance ................................
$295,200
Therefore, net income = $136,000
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
Common stock
Total equity...............................................
$2,400,000
Less equity for preferred ........................
(375,000)
Common stock equity .............................
$2,025,000
Number of outstanding shares ..............
18,000
Book value per common share ..............
$ 112.50
($2,025,000 / 18,000)
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
Preferred equity .......................................
$ 435,000
*2 years’ dividends = 2 x ($375,000 x 8%) = $60,000
Number of outstanding shares ..............
1,500
Book value per preferred share .............
$ 290.00
($435,000 / 1,500)
Common stock
Total equity...............................................
$2,400,000
Less equity for preferred ........................
(435,000)
Common stock equity .............................
$1,965,000
Number of outstanding shares ..............
18,000
Book value per common share ..............
$ 109.17
($1,965,000 / 18,000) rounded
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
Preferred equity .............................................
$ 480,000
*2 years’ dividends = 2 x ($375,000 x 8%) = $60,000
Number of outstanding shares ....................
1,500
Book value per preferred share ...................
$ 320.00
($480,000/1,500)
Common stock
Total equity.....................................................
$2,400,000
Less equity for preferred ..............................
(480,000)
Common stock equity ...................................
$1,920,000
Number of outstanding shares ....................
18,000
Book value per common share ....................
$ 106.67
($1,920,000/18,000) rounded
6. Dividend allocation in total
Preferred
Common
Total
2 years’ dividends in arrears ...
$ 60,000
$ 0
$ 60,000
Current year dividends .............
30,000
—
30,000
Remainder to common .............
—
10,000
10,000
Totals ..........................................
$ 90,000
$ 10,000
$100,000
Dividends per share for the common stock
$10,000 / 18,000 shares = $0.56 rounded
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.
Therefore, the book value of common stock does not normally match its
market value. Also, the book value of common stock is based on past
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Solutions Manual, Chapter 11
667
Serial Problem (concluded)
b. Having a preferred shareholder means that Santana’s Uncle
Marcello will not have the same voting rights as Santana. Marcello
may be expecting regular dividend, however, so Santana should be
prepared to pay $6,020 ($86,000 x 7%) in dividends each year. This
is not a requirement, however, even if the preferred stock is
3. There is no correct answer to the question of which proposal Santana
prefers.
