Chapter 11 – Reporting and Analyzing Equity
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 ……………………………………………………………………….
Building ………………………………………………………………….
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 (10 minutes)
1.
C
2.
A
3.
F
4.
E
5.
B
6.
D
Exercise 11-6 (20 minutes)
1.
a. Retained earnings
Before dividend ………………………………………………………………
$ 660,000
$10 par value of 25,000 dividend shares ……………………….…
(250,000)
After dividend …………………………………………………………………
$ 410,000
Common stock⎯$10 par value, 120,000 shares
authorized, 75,000 shares issued and outstanding ……..…
$ 750,000
Paid-in capital in excess of par value ………………………………
200,000
Retained earnings ………………………………………………………..…
410,000
Total stockholders’ equity …………………………………………….…
$1,360,000
c. Number of outstanding shares
Outstanding shares before the dividend ………………………..
50,000
Dividend shares …………………………………………………………...
25,000
Outstanding shares after the dividend …………………………..
75,000
2.
a. Retained earnings (no change)
Before and after stock split …………………………………………..…
$ 660,000
b. Total stockholders’ equity
Common stock⎯$6.67 (rounded) par value, 180,000 shares
authorized, 75,000 shares issued and outstanding ………..…
$ 500,000
Paid-in capital in excess of par value ………………………………
200,000
Retained earnings ………………………………………………………..…
660,000
Total stockholders’ equity …………………………………………….…
$1,360,000
c. Number of outstanding shares
Outstanding shares before the split…………………………………
50,000
Additional split shares (3-for-2) …………………………………….…
25,000
Outstanding shares after the split ……………………………………
75,000
3. From a stockholder’s point of view, there is no practical difference
between the stock dividend and the stock split. The number of
Exercise 11-8 (30 minutes)
Non-Cumulative
Preferred
Common
2013 ($20,000 paid)
Preferred* ……………………………………………...
$ 20,000
Common⎯remainder ……………………………..
_______
$ 0
Total for the year …………………………………...
$ 20,000
$ 0
2014 ($28,000 paid)
Preferred* ……………………………………………...
$ 28,000
Common⎯remainder ……………………………..
_______
$ 0
Total for the year …………………………………...
$ 28,000
$ 0
2015 ($200,000 paid)
Preferred* ……………………………………………...
$ 30,000
Common⎯remainder ……………………………..
_______
$170,000
Total for the year …………………………………...
$ 30,000
$170,000
2016 ($350,000 paid)
Preferred* ……………………………………………...
$ 30,000
Common⎯remainder ……………………………..
_______
$320,000
Total for the year …………………………………...
$ 30,000
$320,000
2013-2016 ($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 11-10 (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 ……………..
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 …………………………………………….…..
(v) Total stockholders’ equity will change from $1,800,000 to $1,675,000.
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 11-18 (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.