(15 min.) E 10-25A
Preferred
Common
Total
2014
Total dividend
$ 86,000
Preferred dividends in arrears:
2012: 90,000 shares × $1.00(par)
per share × .05 =
$4,500
2013: 90,000 shares × $1.00(par)
per share × .05 =
4,500
Preferred dividends, current year :
2014: 90,000 shares × $1.00(par)
per share × .05 =
4,500
Total to preferred
$13,500
Remainder to common
$72,500
2015
Total dividend
$264,000
Preferred dividends, current year:
2015: 90,000 shares × $1.00(par)
per share × .05 =
$4,500
Remainder to common
$259,500
(15-20 min.) E 10-26A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Apr.
16
Retained Earnings (750,000 × .15 × $20) ………
2,250,000
Common Stock (750,000 × .15 × $0.30) ……
33,750
Paid-in Capital in Excess of
Par – Common ……………………………………
2,216,250
To declare and distribute a common stock dividend.
Req. 2
Stockholders’ equity:
Common stock, $0.30 par, 2,600,000 shares authorized,
862,500 issued ($225,000 + $33,750) …………………..
$ 258,750
Paid-in capital in excess of par – common
($1,614,400 + $2,216,250) …………………………………..
3,830,650
Retained earnings ($7,154,000 − $2,250,000) …………..
4,904,000
Accumulated other comprehensive income (loss) …..
(200,000)
Total stockholders’ equity …………………………………
$8,793,400
Req. 3
The stock dividend did not change total stockholders’ equity because
Req. 4
(15-20 min.) E 10-27A
a. Decrease stockholders’ equity by $58 million.
b. No effect.
(10-15 min.) E 10-28A
Req. 1
Common:
Total stockholders’ equity ……………………………………….
$111,500
Less: Preferred equity — redemption value ………………
(40,000)
Total common equity……………………………………………….
$71,500
Book value per share ($71,500 / 6,000 shares) …………..
$ 11.92
Req. 2
Common:
Total stockholders’ equity …………………………………………
$ 111,500
Less: Preferred equity [$40,000 + ($31,500 × .05 × 3)]…..
(44,725)
Total common equity…………………………………………………
$ 66,775
Book value per share ($66,775 / 6,000 shares) …………….
$ 11.13
Req. 3
(10-15 min.) E 10–29A
Req. 1
Net
profit
=
Net income
=
$1,884
=
3.14%
margin
Net sales
$60,000
ratio
Asset
Net sales
=
$60,000
=
$60,000
=
1.11
turnover
=
Average total
($52,058* + $55,798**)/2
$53,928
assets
Leverage
Avg. total assets
=
$53,928
=
2.88
ratio
=
Avg. common
stkholders’ equity
($14,035 + $23,479) /2
Net profit
x
Asset
=
margin ratio
turnover
ROA
3.14%
x
1.11
=
3.5%
ROA
x
Leverage
=
ROE
ratio
3.5%
x
2.88
=
10.1%
_____
(continued) E 10-29A
Req. 2
These rates of return suggest relative weakness. The company is
generating a 3.14% net profit margin ratio (moderate effectiveness). The
Req. 3
(10 min.) E 10-30A
Cash flows from financing activities:
Payment of long-term debt ………………………………………
$(8,145)
Proceeds from issuance of common stock ……………….
9,420
Borrowings …………………………………………………………….
4,580
Dividends paid ………………………………………………………..
(324)
(20-25 min.) E 10-31A
Req. 1
(Thousands)
$3.50 Par
Common
Stock
Additional
Paid In
Capital
Retained
Earnings
Accum. Other
Comprehensive
Income
Total
Shareholders’
Equity
Balance, Dec. 31, 2013 ..
$395
$1,505
$4,700
$8
$6,608
Net earnings ………………
1,050
1,050
Other comprehensive
income ………………….
1
1
Issuance of stock ……….
140
70
210
Cash dividends …………..
(80)
(80)
Balance, Dec. 31, 2014 ..
$535
$1,575
$5,670
$9
$7,789
Req. 2
Req. 3
The year was profitable, as indicated by net earnings.
Req. 4
(10-15 min.) E 10–32B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
23
Cash …………………………………………………….
56,700
Common Stock …………………………………
4,200
Paid-in Capital in Excess of Par –
Common ………………………………………….
52,500*
Aug.
12
Inventory ………………………………………………
13,000
Equipment ……………………………………………
54,000
Common Stock …………………………………
3,300
Paid-in Capital in Excess of Par –
Common …………………………………………..
63,700*
Req. 2
Stockholders’ Equity
Common stock, $1.00 par, 13,000 shares authorized,
7,500 shares issued and outstanding………………………...
$ 7,500
Paid-in capital in excess of par − common …………………………
116,200*
Retained earnings …………………………………………………………….
51,600
Total stockholders’ equity …………………………………………….
$175,300
_____
*Computations:
July 23: 4,200 shares × ($13.50 − $1.00) = ……………………………….
$ 52,500
Aug. 12: $13,000 + $54,000 − (3,300 shares × $1.00) = …………….
63,700
$116,200
(10 min.) E 10-33B
Paid-in capital consists of:
Issued common stock for legal services …………………..
$ 21,000
Issued common stock for patent ………………………………
67,000
Issued preferred stock (2,000 shares × $120) …………….
Issued common stock for cash (16,000 shares × $6) ….
240,000
96,000
Total paid-in capital ………………………………………………….
$424,000
Unused data:
Net income
Dividends declared
Alternative short-cut solution:
1.
$ 21,000
2.
67,000
3.
240,000 (2,000 × $120)
4.
96,000 (16,000 × $6)
$424,000 = Total paid-in capital
(10-15 min.) E 10-34B
Stockholders’ Equity (Thousands)
Common stock, $2.50 par, 1,000 shares
authorized, 350 shares issued, 210 shares outstanding
$ 875
Paid-in capital in excess of par …………………………………….
900
Retained earnings ……………………………………………………….
2,341
Treasury stock, common, 140 shares at cost …………………
(1,820)
Accumulated other comprehensive income (loss) …………
(727)
Total stockholders’ equity ………………………………………..
$1,569
Treasury Stock has a larger balance than the sum of Common Stock
and Paid-in Capital in Excess of Par because Buffette Software paid a
higher price to acquire treasury stock than the price Buffette received
when it issued its stock.
(10 min.) E 10-35B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Millions
b.
Cash (9 million × $11.00) …………………………...
99
Common Stock (9 million × $2.00) ………….
18
Paid-in Capital in Excess of Par Value ……
81
c.
Treasury Stock ………………………………………….
12
Cash …………………………………………………….
12
d.
Cash …………………………………………………………
7
Treasury Stock ……………………………………..
6
Paid-in Capital from Treasury Stock
Transactions ……………………………………
1
e.
Retained Earnings …………………………………….
23
Dividends Payable ………………………………..
23
Dividends Payable …………………………………….
23
Cash …………………………………………………….
23
or one entry only:
Retained Earnings …………………………………….
23
Cash …………………………………………………….
23
*$12 / 1 = $12 cost per share of treasury stock
$12 x 0.50 = $6
Req. 2
(10 min.) E 10-36B
Dollars in
Millions
Stockholders’ Equity:
Common stock, $2.00 par value,
2,309 million shares issued ($4,600 + $18) ………………
$4,618
Paid in capital in excess of par value ($4,100 + $81) ..
4,181
Paid-in capital from treasury stock transactions …………
1
Retained earnings ($1,565 + $374 − $23) ……………………..
1,916
Treasury stock, at cost ($48 + $12 − $6) ………………………
(54)
Total stockholders’ equity ……………………………………..
$10,662
(20-30 min.) E 10-37B
Req. 1
Possible causes for preferred stock decrease:
Req. 2
Possible causes for common stock increase:
Common stock issued—
• To preferred stockholders who converted their preferred
Req. 3
(Millions
of shares
of stock)
Dec. 31, 2015
Common shares issued……………………………..
300
Less: Treasury stock, number of shares………
(24)
Common shares outstanding……………………….
276
(continued) E 10-37B
Req. 4
Retained Earnings (Millions)
Dec. 31, 2014
Bal.
5,135
Dividends
308
Net income
1,368
Dec. 31, 2015
Bal.
6,195
Req. 5 (All amounts in millions)
December 31,
Purchases
2015
2014
During 2015
Cost of treasury stock ……………………….
$270
−
$130
=
$ 140
Treasury stock, number of shares ……..
24
−
12
=
÷ 12
Average price per share paid for
treasury stock purchased during 2015 ……….
$11.67
(15 min.) E 10-38B
Preferred
Common
Total
2014
Total dividend
$109,000
Preferred dividends in arrears:
2012: 70,000 shares × $2.00(par)
per share × .06 =
$ 8,400
2013: 70,000 shares × $2.00(par)
per share × .06 =
8,400
Preferred dividends, current year :
2014: 70,000 shares × $2.00(par)
per share × .06 =
8,400
Total to preferred
$25,200
Remainder to common
$83,800
2015
Total dividend
$364,000
Preferred dividends, current year:
2015: 70,000 shares × $2.00(par)
per share × .06 =
$ 8,400
Remainder to common
$355,600
(15-20 min.) E 10-39B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
13
Retained Earnings (650,000 × .20 × $17) ……
2,210,000
Common Stock (650,000 × .20 × $0.75) ….
97,500
Paid-in Capital in Excess of Par –
Common ………………………………………..
2,112,500
To declare and distribute a common stock dividend.
Req. 2
Stockholders’ equity:
Common stock, $0.75 par, 2,700,000 shares authorized,
780,000 issued and outstanding ($487,500 + $97,500)
$ 585,000
Paid-in capital in excess of par − common
($1,512,000 + $2,112,500) …………………………………..
3,624,500
Retained earnings ($7,123,000 − $2,210,000) …………..
4,913,000
Accumulated other comprehensive income (loss) …..
(195,000)
Total stockholders’ equity …………………………………
$8,927,500
Req. 3
The stock dividend did not change total stockholders’ equity because
Req. 4
(15-20 min.) E 10-40B
a. Decrease stockholders’ equity by $58 million.
(10-15 min.) E 10-41B
Req. 1
Common:
Total stockholders’ equity ……………………………………….
$ 82,500
Less: Preferred equity — redemption value ………………
(30,000)
Total common equity……………………………………………….
$ 52,500
Book value per share ($52,500 / 5,000 shares) …………..
$10.50
Req. 2
Common:
Total stockholders’ equity ……………………………………….
$ 82,500
Less: Preferred equity [$30,000 + ($22,500 × .06 × 3)] ..
(34,050)
Total common equity ………………………………………………
$ 48,450
Book value per share ($48,450 / 5,000 shares)…………..
$9.69
Req. 3
Bleu Door’s stock is not necessarily a good buy. Investment decisions
should be based on more than one ratio.
(10-15 min.) E 10–42B
Req. 1
Net
profit
=
Net income
=
$2,200
=
3.4%
margin
Net sales
$65,000
ratio
Asset
=
Net sales
=
$65,000
=
$65,000
=
1.21
turnover
Average total
($52,070* + $55,780**)/2
$53,925
assets
Leverage
=
Avg. total assets
=
$53,925
=
2.88
ratio
Avg. common
stkholders’
equity
($14,037 + $23,471) /2
Net profit
x
Asset
=
margin ratio
turnover
ROA
3.4%
x
1.21
=
4.1%
ROA
x
Leverage
=
ROE
ratio
4.1%
x
2.88
=
11.8%
_____
(continued) E 10-42B
Req. 2
These rates of return suggest relative weakness. The company is