CP11–4
Case A—Preferred is noncumulative (total amount to distribute, $12,600):
Preferred
(6,000
shares)
Common
(30,000
shares)
Total
Preferred ($60,000 x 8%) …………………………..
$ 4,800
$ 4,800
Balance to common ($12,600 – $4,800) ………………….
$7,800
7,800
$ 4,800
$7,800
$12,600
Per share ……………………………………………………….
$0.80
$0.26
Case B—Preferred is cumulative (total amount to distribute, $14,400):
Preferred:
Arrears ($60,000 x 8% x 2 years) ….…………………….
$ 9,600
$ 9,600
Current year ($60,000 x 8%) ………..…………………
4,800
4,800
Balance to common …………………………..
–0–
–0–
$14,400
–0–
$14,400
Per share ……………………………………..………………..
$2.40
$ –0–
Case C—Preferred is cumulative (total amount to distribute, $66,000):
Preferred:
Arrears ($60,000 x 8% x 2 years) ………………………..
$ 9,600
$ 9,600
Current year ($60,000 x 8%) …………………….…….
4,800
4,800
Balance to common ($66,000 – $14,400)
$51,600
51,600
$14,400
$51,600
$66,000
Per share ………………………………………………….……
$2.40
$1.72
CP11–5
Req. 1
Aaron’s
Rent-A-Center
ROE =
Net Income
$121
$128
Average
($1,141+ $1,136) ÷ 2
($1,343 + $1,464) ÷ 2
Stockholders’
Equity
=
0.106
or
10.6%
0.0912
Or
9.12%
Aaron’s
Rent-A-Center
P/E =
Stock Price
$28.32
$31.22
EPS
$1.59
$2.34
=
17.8
13.3
ANSWERS TO GROUP A PROBLEMS
PA11–1
Req. 1
Assets
Liabilities
Stockholders’ Equity
a.
Cash +5,500,000
NE
Common Stock +500,000
Additional Paid-in Capital +5,000,000
b.
Cash –1,250,000
NE
Treasury Stock (+xSE) –1,250,000
c.
Cash +510,000
NE
Additional Paid-in Capital +10,000
Treasury Stock (-xSE) +500,000
d.
Cash +490,000
NE
Additional Paid-in Capital –10,000
Treasury Stock (-xSE) +500,000
Req. 2
(a) Cash …………………………..…………………………..……………
5,500,000
Common Stock …………………………..…………….…………
500,000
Additional Paid-in Capital, Common Stock ………………
5,000,000
(b) Treasury Stock …………………………..……………….…………
1,250,000
Cash …………………………..…………………………..
1,250,000
(c) Cash ………………………………………………………...…………
510,000
Treasury Stock …………………………..…………….…………
500,000
Additional Paid-in Capital, Treasury Stock ………………
10,000
(d) Cash …………………………..…………………………....…………
490,000
Additional Paid-in Capital, Treasury Stock …………………
10,000
Treasury Stock …………………………..………………………
500,000
Req. 3 Stockholders’ Equity—December 31
Contributed Capital:
Common Stock, par $5, authorized 1,000,000 shares; issued 100,000
shares, of which 5,000 shares are held as treasury stock ……………………
$ 500,000
Additional Paid-in Capital …………………………..…………………………..……..…
5,000,000
Total Contributed Capital ……………………………………………………….…..…
5,500,000
Retained Earnings …………………………..…………………………..…………………..…
400,000
Total ……………………………………………………….…………………………..…..…
5,900,000
Less: Treasury Stock, at cost* …………………………..…………………………...…
(250,000)
Total Stockholders’ Equity …………………………..…………………………..…….…
$5,650,000
* ($250,000 = 5,000 shares x $50)
PA11–2
Req. 1
March 5
Dividends …………………………..…………………………..………
100,000
Dividends Payable …………………………..………………..…
100,000
March 26
Date of record – No journal entry is required.
April 29
Dividends Payable ……………………………………………..……
100,000
Cash …………………………..…………………………..…….……
100,000
April 30
Retained Earnings ……………………………………………..……
100,000
Dividends …………………………..…………………………..
100,000
Req. 2
The board must consider the balances of Retained Earnings and Cash before declaring
a cash dividend. The corporation must have a sufficient amount of Retained Earnings to
cover the amount of the dividend, as well as have sufficient cash to pay the dividend
and continue to meet the operating needs of the organization.
PA11–3
Req. 1
Common Stock $150,000 / $2 par
=
75,000 shares
Issued Shares
75,000
Treasury Stock
(10,000)
Shares Outstanding
65,000
Req. 2
PA11–4
Case A—Preferred is noncumulative (total amount to distribute, $30,000):
Preferred
(21,000
shares)
Common
(500,000
shares)
Total
Preferred ($10 par x 8% x 21,000) …………………………...
$16,800
$16,800
Balance to common ($30,000 – $16,800) ………………….
$13,200
13,200
$16,800
$13,200
$30,000
Per share ……………………………………………………….…….
$.80
$.03 (rounded)
Case B—Preferred is cumulative (total amount to distribute, $30,000):
Preferred:
Arrears ($10 x 8% x 21,000 x 2 years = $33,600) ……
$30,000
$30,000
Current year…………………………..…………………………..
–0–
–0–
Common …………………………..…………………………..…..
–0–
–0–
$30,000
–0–
$30,000
Per share ……………………………………………………….…….
$1.43
$ –0–
Note: $3,600 of dividends in arrears ($33,600 – $30,000) will carry over to the next year
along with $16,800 from the current year.
Case C—Preferred is cumulative (total amount to distribute, $75,000):
Preferred
Common
TOTAL
Arrears ($10 x 8% x 21,000 x 2 years = $33,600) ……
$33,600
$33,600
Current year ($210,000 x 8%) …………………………..….
16,800
16,800
Balance to common ($75,000 – $50,400) ……………….
$24,600
24,600
$50,400
$24,600
$75,000
Per share ……………………………………………………….…….
$2.40
$.05 (rounded)
PA11–5
Req. 1
BusinessWorld
Fun and Games
ROE =
Net Income
$110,000
$91,420
Average
($512,814 + $587,186) ÷ 2
($447,151 + $467,049) ÷ 2
Stockholders’
Equity
=
0.2
or
20%
=
0.2
or
20%
BusinessWorld
Fun and Games
P/E =
Stock Price
$54.40
$32.55
EPS
$3.20
$2.10
=
17.0
15.5
Investors appear to value BusinessWorld more because they are willing to pay 17 times
11–38 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 GROUP B PROBLEMS
PB11–1
Req. 1
Assets
Liabilities
Stockholders’ Equity
a.
Cash +4,600,000
NE
Common Stock +200,000
Additional Paid-in Capital +4,400,000
b.
Cash –120,000
NE
Treasury Stock (+xSE) –120,000
Req. 2
(a)
Cash …………………………..…………………………..……..…………
4,600,000
Common Stock …………………………..………………..…………
200,000
Additional Paid-in Capital, Common Stock ……….…………
4,400,000
(b)
Treasury Stock …………………………..…………………………..
120,000
Cash …………………………..…………………………..….…………
120,000
Req. 3
Stockholders’ Equity—December 31
Contributed Capital:
Common Stock, par $1, authorized 500,000 shares; issued 200,000
shares, of which 5,000 shares are held as treasury stock ……………………
$ 200,000
Additional Paid-in Capital …………………………..…………………………..………..
4,400,000
Total Contributed Capital ……………………………………………………….……..
4,600,000
Retained Earnings …………………………..…………………………..……………………..
58,000
Total ……………………………………………………….…………………………..……..
4,658,000
Less: Treasury Stock, at cost* …………………………..…………………………..….
(120,000)
Total Stockholders’ Equity …………………………..…………………………..……
$4,538,000
PB11–2
Req. 1
April 1
Dividends ($0.50 x 605,000) …………………………..………….
302,500
Dividends Payable, Preferred …………………………..……
302,500
May 26
Date of record – No journal entry is required.
May 31
Dividends Payable, Preferred …………………………..….……
302,500
Cash …………………………..…………………………..…….……
302,500
June 30
Retained Earnings …………………………..………………….…..
302,500
Dividends ……………………………………………………….
302,500
302,500
302,500
Req. 2
The board must consider the balances of Retained Earnings and Cash before declaring
a cash dividend. The corporation must have a sufficient amount of Retained Earnings to
cover the amount of the dividend, as well as have sufficient cash to pay the dividend
and continue to meet the operating needs of the organization.
PB11–3
Req. 1
Common Stock $750,000 / $1
=
750,000 shares
Issued Shares
750,000
Treasury Stock
(50,000)
Shares Outstanding
700,000
Req. 2