M11–14
Last year: P/E Ratio = Market Price per Share ÷ Earnings per Share
= $212.50 ÷ $8.50
M11–15
(a)
Statement of Owner’s Equity
Daniel Harrison, capital, beginning of year
$ 0
Capital contributions
20,000
Net income for year*
12,000
32,000
Withdrawals for year
(5,000)
Daniel Harrison, capital, end of year
$27,000
*$12,000 = $30,000 – 18,000
(b)
Balance Sheet (partial)
Owner’s Equity
Daniel Harrison, Capital
$27,000
(c)
Balance Sheet (partial)
Stockholder’s Equity
Common Stock (no-par value)
$20,000
Retained Earnings
7,000*
Total Stockholder’s Equity
$27,000
* $7,000 = $30,000 (Revenue) – $18,000 (Expenses) – $5,000 (Dividends)
M11–16
Retained Earnings …………………………..……………….…………
200,000
Common Stock …………………………..………………..…………
200,000
(200,000 shares x 100% x $1 par value)
11–12 Solutions Manual
© 2016 by McGraw–Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
ANSWERS TO EXERCISES
E11–1
(a) Computation of issued stock:
Balance at end of 2012 ………………
755
Changes during 2013 …………………
0
*
Balance at end of 2013 ………………
755
Balance at end of 2012 ………………
106
Shares purchased in 2013 ………….
24
Shares reissued in 2013 …………….
(16)
Balance at end of 2013 ………………
114
Issued stock (see a above) …………
755
Treasury stock (see b above) ………
(114
)
Balance at end of 2013 ………………
641
E11–2
Req. 1
Assets
=
Liabilities
+
Stockholders’ Equity
a.
Cash
+120,000
=
Common Stock
Additional Paid-
in Capital
+6,000
+114,000
b.
Cash
+46,000
=
Common Stock
Additional Paid-
in Capital
+2,000
+44,000
Req. 2
a.
Cash (6,000 shares x $20)…………………………..……………….
120,000
Common Stock (6,000 shares x $1) …………………………...
6,000
Additional Paid-in Capital, Common Stock ………………….
114,000
b.
Cash (2,000 shares x $23)…………………………..……………….
46,000
Common Stock (2,000 shares x $1) …………………………..
2,000
Additional Paid-in Capital, Common Stock …………………
44,000
Req. 3
Stockholders’ Equity
Contributed Capital:
Common Stock, par $1, authorized 12,000 shares,
outstanding 8,000 shares …………………………..…………………………..….
$ 8,000
*
Additional Paid-in Capital…………………………..…………………………..……..
158,000
**
Total Contributed Capital …………………………..…………………………..……..
166,000
Retained Earnings …………………………..…………………………..………………….
100
Stockholders’ Equity …………………………..…………………………..……………….
$166,100
* $8,000 = $6,000 + $2,000
** $158,000 = $114,000 + $44,000
Req. 4
Incentive Corporation has a balance of only $100 in Retained Earnings, the maximum
amount of dividends the company can declare and distribute is $100 (because state
laws restrict dividends to the balance in Retained Earnings). Dividends are a distribution
of earnings to the owners, so in the absence of significant earnings, dividends should
not be distributed.
E11–3
Stockholders’ Equity—December 31
Contributed Capital:
Preferred Stock, 8%, par $10, authorized 20,000 shares; issued and
outstanding, 11,000 shares …………………………..…………………………..
$110,000
Additional Paid-in Capital, Preferred* …………………………..……………….
66,000
Common Stock, par $1, authorized 50,000 shares; issued and
outstanding, 43,000 shares …………………………..…………………………..
43,000
Additional Paid-in Capital, Common^ …………………………..……………….
617,000
Total Contributed Capital …………………………..…………………………....
836,000
Retained Earnings …………………………..…………………………..………………..
48,000
Total Stockholders’ Equity …………………………..…………………………..….
$884,000
* $66,000 = [($16 – $10 par) x 10,000] + [($16 – $10 par) x 1,000]
^ $617,000 = [($15 – $1 par) x 40,000] + [($20 – $1 par) x 3,000]
E11–4
Stockholders’ Equity – December 31
Contributed Capital:
Preferred Stock, 6%, par $10 , authorized 50,000 shares,
issued and outstanding, 15,000 shares …………………………..……………
$150,000
Additional Paid-in Capital, Preferred Stock* …………………………..…………
300,000
Common Stock, par $1, authorized 200,000 shares,
issued and outstanding, 20,000 shares …………………………..……………
20,000
Additional Paid-in Capital, Common Stock** …………………………..………..
380,000
Total Contributed Capital ………………………………………………………..
850,000
Retained Earnings* …………………………..…………………………..……………………
40,000
Total Stockholders’ Equity…………………………..…………………………..…….
$890,000
* $300,000 = ($30 – $10 par) x 15,000 shares
** $380,000 = $400,000 – (20,000 shares x $1 par)
***$40,000 = $50,000 – $10,000
E11–5
Req. 1
Stockholders’ Equity – December 31
Contributed Capital:
Preferred Stock, 7%, par $10, authorized 5,000 shares,
issued and outstanding, 3,000 shares …………………………..………………….
$ 30,000
Additional Paid-in Capital, Preferred* …………………………..…………………….
36,000
Common Stock, $6 par, authorized 100,000 shares,
issued and outstanding, 20,000 shares …………………………..………………..
120,000
Additional Paid-in Capital, Common^ …………………………………………………
240,000
Total Contributed Capital …………………………..…………………………..……..
426,000
Retained Earnings …………………………..…………………………..……………………..
38,000
Total Stockholders’ Equity…………………………..…………………………..…….
$464,000
* $36,000 = [($22 – $10 par) x 3,000]
^ $240,000 = [($18 – $6 par) x 20,000]
Req. 2
The answer would depend on the profitability of Inside Incorporated and the stability of
its earnings. The preferred stock has a 7% dividend rate. If Inside Incorporated earns
more than 7%, the additional earnings would benefit the common stockholders. If the
company earns less than 7%, it would have to pay a higher rate to the preferred
stockholders than to the common stockholders. The answer also would depend on how
important it is to retain the current level of control as an owner in Inside Incorporated.
The voting control of existing stockholders will be diluted if more common stock is
issued but not if preferred stock is issued.
E11–6
Req. 1
a.
Cash (5,000 shares x 4 x $40) …………………………..………….
800,000
Common Stock …………………………..………………………….
800,000
b.
Cash (6,000 shares x $40)…………………………..……………….
240,000
Common Stock (6,000 shares x $40) …………………………
240,000
c.
Cash (8,000 shares x $20)…………………………..……………….
160,000
Preferred Stock (8,000 shares x $10)…………………………
80,000
Additional Paid-in Capital, Preferred …………………………
80,000
Req. 2
Stockholders’ Equity – December 31
Contributed Capital:
Preferred Stock, par $10, authorized 20,000 shares,
issued and outstanding, 8,000 shares …………………………..………………….
$ 80,000
Additional Paid-in Capital, Preferred …………………………..………………………
80,000
*
Common Stock, no-par, authorized 50,000 shares,
issued and outstanding, 26,000 shares …………………………..………………..
1,040,000
Total Contributed Capital …………………………..…………………………..……..
1,200,000
Retained Earnings …………………………..…………………………..……………………..
36,000
Total Stockholders’ Equity…………………………..…………………………..…….
$1,236,000
* $80,000 = [($20 – $10 par) x 8,000 shares]
E11–7
Req. 1
Number of preferred shares issued: $104,000 $20 = 5,200.
Req. 2
Number of preferred shares outstanding: 5,200 shares issued minus 1,000 shares held
as treasury stock = 4,200.
Req. 3
E11–8
Req. 1
Assets
=
Liabilities
+
Stockholders’ Equity
Feb. 1
Cash
–8,000
=
Treasury Stock
(+xSE)
–8,000
Jul. 15
Cash
+3,000
=
Treasury Stock
(-xSE)
Additional
Paid-in Capital
+2,000
+1,000
Sept. 1
Cash
+900
=
Treasury Stock
(-xSE)
Additional
Paid-in Capital
+1,200
–300
Req. 2
Feb. 1:
Treasury Stock …………………………..…………………………..….
8,000
Cash …………………………..…………………………..…………….
8,000
Purchased 400 shares of treasury stock at $20 per share.
July 15:
Cash (100 shares x $30) …………………………..…………………
3,000
Treasury Stock (100 shares x $20) …………………………………
2,000
Additional Paid-in Capital, Treasury Stock ………………….
1,000
Issued 100 shares of treasury stock at $30 per share.
Sept. 1:
Cash (60 shares x $15) …………………………..…………………..
900
Additional Paid-in Capital, Treasury Stock …………………….
300
Treasury Stock (60 shares x $20) …………………………………..
1,200
Issued 60 shares of treasury stock at $15 per share.
Req. 3
Dividends are not paid on treasury stock. Therefore, the total amount of cash dividends
paid is reduced when treasury stock is purchased.
Req. 4
The reissuance of treasury stock for more or less than its original repurchase cost does
not affect net income. The transaction affects only balance sheet accounts.
E11–9
Req. 1
Assets
Liabilities
Stockholders’
Equity
a.
–
NE
–
b.
NE
+
–
c.
–
–
NE
d.
+
NE
+
e.
NE
NE
+/–
Req. 2
(a)
Treasury Stock …………………………..…………………………..
350,000
Cash …………………………..…………………………..….…………
350,000
(b)
Dividends …………………………..…………………………..
260,000
Dividends Payable ……………………………………….…………
260,000
(c)
Dividends Payable …………………………..…………………………
260,000
Cash …………………………..…………………………..….…………
260,000
Additional Paid-In Capital, Common Stock ……….…………
Retained Earnings …………………………..……………….…………
260,000
Dividends …………………………..……………………….….
260,000
E11–9 (continued)
Req. 3 MALIBU BEACHWEAR
Commented [JPW2]: This should be formatted into a statement
of stockholder’s equity as requested by problem in text..