11-117
PROBLEM 11-23B (cont.)
c.
Edgar Corporation
Balance Sheet
As of December 31, 2017
Assets
Cash
$1,207,600
Total Assets
$1,207,600
Liabilities
Dividends Payable
$ 63,200
Total Liabilities
$ 63,200
Stockholders’ Equity
Preferred Stock, $80 par value, 4%
cumulative, 50,000 shares authorized,
6,000 shares issued and outstanding
$480,000
Common Stock, $8 par value, 100,000 shares
authorized, 45,000 shares issued, 44,000
shares outstanding
360,000
Paid-In Capital in Excess of Par−Preferred
Stock
68,000
Paid-In Capital in Excess of Par−Common
Stock
130,000
Total Paid-In Capital
1,038,000
Retained Earnings
120,400
Less: Treasury Stock
(14,000)
Total Stockholders’ Equity
1,144,400
Total Liabilities and Stockholders’ Equity
$1,207,600
11-118
PROBLEM 11-24B
Date
Account Titles
Debit
Credit
1.
Cash (15,000 x $10)
150,000
Common Stock, $10 par
150,000
2.
Cash (5,000 x $52)
260,000
Preferred Stock, $50 stated value
250,000
Paid-In Capital in Excess of SV-PS
10,000
3.
Treasury Stock (Common Stock)
(800 x $12)
9,600
Cash
9,600
4.
Dividends ($50 x 5% x 5,000)
12,500
Dividends Payable
12,500
5.
Cash (300 x $16)
4,800
Treasury Stock (300 x $12)
3,600
PIC in Excess of Cost−TS
1,200
6.
Dividends Payable
12,500
Cash
12,500
7.
Cash (assumed cash)
80,000
Service Revenue
80,000
Operating Expenses
48,000
Cash (assumed cash)
48,000
Closing Entries
8.
Service Revenue
80,000
Retained Earnings
80,000
Retained Earnings
48,000
Operating Expenses
48,000
Retained Earnings
12,500
Dividends
12,500
9.
Retained Earnings
6,000
11-119
Appropriated Retained Earnings
6,000
11-120
PROBLEM 11-24B a. (cont.)
Rabern Corp. T-Accounts for 2016
Cash
Dividends Payable
Retained Earnings
1. 150,000
3. 9,600
6. 12,500
4. 12,500
cl 8. 60,500
cl 8 80,000
2. 260,000
6. 12,500
Bal. -0-
cl 9. 6,000
5. 4,800
7. 48,000
Bal. 13,500
7. 80,000
Bal. 424,700
Appropriated Retained Earn.
cl 9. 6,000
Bal. 6,000
Preferred Stock
2. 250,000
Bal. 250,000
Common Stock
1. 150,000
Bal. 150,000
PIC in Exc. of SV Pref. Stk.
2. 10,000
Bal. 10,000
PIC in Exc. of Cost TS
5. 1,200
Bal. 1,200
Treasury Stock
3. 9,600
5. 3,600
Bal. 6,000
Dividends
4. 12,500
cl 8. 12,500
Bal. -0-
Service Revenue
cl 8. 80,000
7. 80,000
Bal. -0-
Operating Expenses
7. 48,000
cl 8. 48,000
Bal. -0-
11-121
PROBLEM 11-24B (cont.)
b.
Rabern Corp.
December 31, 2016
Stockholders’ Equity
Preferred Stock, $50 stated value, 5,000 shares
issued and outstanding
$ 250,000
Common Stock, $10 par value, 15,000 shares
issued, and 14,500 shares outstanding
150,000
Paid-In Capital in Excess of Stated Value Pref.
Stk.
10,000
Paid-In Capital in Excess of Cost, Treasury Stk.
1,200
Total Paid-In Capital
$411,200
Retained Earnings
Appropriated
$ 6,000
Unappropriated1
13,500
Total Retained Earnings
19,500
Less: Treasury Stock (500 shares)
(6,000)
Total Stockholders’ Equity
$424,700
11-9
PROBLEM 11-25B
a. $400,000 40,000 shares = $10 per share
b. $10 par value per share x 5% = $.50 per share
f. 1. 38,000 x 2 = 76,000 shares outstanding after the split.
2. No amount will be transferred from retained earnings.
3. Theoretically, the market price will be $20 ($40 2).
11–10
PROBLEM 11-26B
Halbart Inc.
Statements Model
Balance Sheet
Income Statement
Event
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
1.
+
NA
+
NA
NA
NA
+ FA
2.
*NA
NA
NA
NA
NA
NA
NA
3.
NA
NA
+−
NA
NA
NA
NA
4.
+
NA
+
NA
NA
NA
+ FA
5.
+
NA
+
NA
NA
NA
+ FA
6.
+
NA
+
NA
NA
NA
+ FA
7.
−
NA
−
NA
NA
NA
− FA
8.
NA
+
−
NA
NA
NA
NA
9.
NA
NA
+−
NA
NA
NA
NA
10.
−
−
NA
NA
NA
NA
− FA
*No entry: memo record of change in par value and # of shares.
11–11
1. The three major forms of business organizations are the sole
proprietorship, the partnership, and the corporation.
2. The sole proprietorship is formed when an individual decides to
3. The partnership agreement is a legal agreement that defines the
responsibilities of each partner and specifies the division of profits
4. The phrase separate legal entity simply means that the business
5. The articles of incorporation constitute a legal document that is filed
with the appropriate state agency requesting the official formation of
11–12
6. The stock certificate is issued as evidence of ownership in a
7. The stock market crash of 1929 and the subsequent economic
depression led to the passage of the Securities and Exchange Acts of
8. The corporate form of business has both advantages and
(1) Limited liability. Owners are not held personally responsible for
(2) Continuity of existence. Corporations do not cease to exist when
(3) Free transferability of ownership interest. An owner can readily
(4) Ease of raising capital. It is generally easier to attract many small
(1) Regulation. Corporations are subject to considerably more
regulation, both state and federal, than are sole proprietorships and
(2) Double taxation. The most important disadvantage of the
11–13
distributions are not deductible for the corporation and are taxable
9. The limited liability company is a relatively new organizational form
in the United States and operates similar to a sole proprietorship or
10. The term double taxation as it refers to a corporation means that
earnings are taxed at both the corporate level and the shareholder
level when earnings are distributed in the form of dividends. For
11. Contributed capital is the capital that is acquired by the corporation
from owners of the corporation. For example, the sale of stock to an
12. For both sole proprietorships and partnerships, contributed capital
and accumulated earnings less withdrawals are combined in one
13. Because corporations can be owned by millions of individuals, they
11–14
access to billions of dollars of capital. Proprietorships and
14. a. Legal capital: Par value multiplied by the number of
shares issued. This represents the minimum amount of
assets that should be maintained as a protection for
creditors.
b. Par value of stock: An arbitrary value that is assigned to a
11–15
j. Common stock: A class of stock that possesses certain rights
usually not given to other classes of stock. These rights include
the right to share in the distribution of profits, the right to share
15. Cumulative preferred stock: A class of preferred stock for which the
stipulated dividend, if not paid, accumulates from one year to the
next. If a corporation does not pay a dividend one year, the unpaid
16. No-par stock is stock for which a par value has not been established
by the corporation. No-par stock may have a stated value. If so,
17. Dividend per share: $100 par x 10% = $10 per share. The total
11–16
18. The amount credited to the common stock account is equal to par
19. Par value and stated value are similar in meaning in that they are
20. A company will repurchase its own stock for a number of reasons.
Some of the most common reasons include: (1) to reduce the
trading.
21. The purchase of treasury stock decreases total equity by debiting the
22. Even though the stock was purchased for $30 per share and resold
for $35 per share, there is no gain on the sale. A company can not
23. The declaration date is the date the dividend is officially declared by
the corporation’s board of directors. The declaration of the dividend
24. A stock dividend may be declared to give the shareholders some
11–17
them. The stock dividend will give each shareholder additional
shares in proportion to their stock ownership. After the stock
dividend, each shareholder owns exactly the same proportion of the
25. A stock dividend is declared either to compensate shareholders when
26. The primary reason for declaring a stock split is to reduce the market
27. In a stock split, the number of shares are increased according to the
amount of the split and the par is reduced proportionately. In a five-
28. When retained earnings are appropriated, cash in the same amount
29. Equity financing (i.e., capital acquired from owners) is the largest
30. Equity financing refers to capital acquired from owners; usually the
payable.
11–18
31. A widely held corporation is one in which the stock is held by a large
32. In deciding whether to declare dividends, the board of directors must
consider whether the corporation has sufficient cash to cover
11–19
SOLUTIONS TO EXERCISES – SERIES A – CHAPTER 11
EXERCISE 11-1A
Transactions
Cash Acquired from Owner
$60,000
Revenues
35,300
Expenses
16,200
Withdrawal
1,000
Marlin Jones Sole Proprietorship
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Revenues
$35,300
Expenses
(16,200)
Net Income
$19,100
Capital Statement
Beginning Capital Balance
$ -0-
Plus: Capital Acquired from Owner
60,000
Plus: Net Income
19,100
Less: Withdrawal by Owner
(1,000)
Ending Capital Balance
$78,100
11–20
EXERCISE 11-1A (cont.)
Marlin Jones Sole Proprietorship
Financial Statements
Balance Sheet
As of December 31, 2016
Assets
Cash
$78,100
Total Assets
$78,100
Liabilities
$ -0-
Equity
Jones, Capital
78,100
Total Liabilities and Equity
$78,100
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Receipts from Revenues
$35,300
Paid for Expenses
(16,200)
Net Cash Flow from Operating Activities
$19,100
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Proceeds from Owner
60,000
Paid for Owner Withdrawals
(1,000)
Net Cash Flow from Financing Activities
59,000
Net Change in Cash
78,100
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$78,100
11–21
EXERCISE 11-2A
Transactions:
Cash Contributions
F. Busby
$44,000
40%
J. Beatty
66,000
60%
Total
$110,000
100%
Revenues
$42,000
Expenses
18,400
Busby, Withdrawal
2,000
Beatty, Withdrawal
2,500
11–23
EXERCISE 11-2A (cont.)
Prepared for the instructor’s use:
Analysis of Capital Accounts:
Busby
Beatty
Total
Beginning Capital Balance
$ -0-
$ -0-
$ -0-
Investments
44,000
66,000
110,000
Net Income
23,600
F. Busby 40%
9,440
J. Beatty 60%
14,160
Withdrawals
(2,000)
(2,500)
(4,500)
Ending Capital Balances
$51,440
$77,660
$129,100