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E13-29 Journalizing a stock dividend and reporting stockholders’ equity
Learning Objective 4
2. Total Stockholders’ Equity $122,000
The stockholders’ equity of Lakeside Occupational Therapy, Inc. on December 31, 2017,
follows:
On April 30, 2018, the market price of Lakeside’s common stock was $16 per share and the
company declared a 13% stock dividend. The stock was distributed on May 15.
Requirements
1. Journalize the declaration and distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet as of May 31, 2018. Assume
Retained Earnings are $120,000 on April 30, 2018, before the stock dividend, and the only
change made to Retained Earnings before preparing the balance sheet was closing the Stock
Dividends account.
E13-29, cont.
SOLUTION
Requirement 2
E13-30 Journalizing cash and stock dividends
Learning Objective 4
1. Common Stock $20,440
Self-Defense Schools, Inc. is authorized to issue 200,000 shares of $2 par common stock. The
company issued 73,000 shares at $5 per share. When the market price of common stock was $7
per share, Self-Defense Schools declared and distributed a 14% stock dividend. Later,
Self-Defense Schools declared and paid a $0.70 per share cash dividend.
Requirements
1. Journalize the declaration and the distribution of the stock dividend.
2. Journalize the declaration and the payment of the cash dividend.
SOLUTION
Requirement 1
Requirement 2
E13-31 Reporting stockholders’ equity after a stock split
Learning Objective 4
Total Stockholders’ Equity $3,410
Wood Golf Club Corp. had the following stockholders’ equity at December 31, 2017:
On June 30, 2018, Wood Golf Club split its common stock 2-for-1. Prepare the stockholders’
equity section of the balance sheet immediately after the split. Assume the balance in retained
earnings is unchanged from December 31, 2017.
SOLUTION
E13-32 Determining the effects of cash dividends, stock dividends, and stock splits
Learning Objective 4
Complete the following chart by inserting a check mark
( )
Ö
for each statement that is true.
SOLUTION
E13-33 Determining the effect of stock dividends, stock splits, and treasury stock
transactions
Learning Objectives 3, 4
Many types of transactions may affect stockholders’ equity. Identify the effects of the following
transactions on total stockholders’ equity. Each transaction is independent.
a. A 10% stock dividend. Before the dividend, 540,000 shares of $1 par value common stock
were outstanding; market value was $9 per share at the time of the dividend.
b. A 2-for-1 stock split. Prior to the split, 66,000 shares of $5 par value common stock were
outstanding.
c. Purchase of 1,100 shares of $0.50 par treasury stock at $6 per share.
d. Sale of 600 shares of $0.50 par treasury stock for $9 per share. Cost of the treasury stock was
$7 per share.
SOLUTION
E13-34 Preparing a multi-step income statement
Learning Objective 5
Net Income $167,000
Clix Photographic Supplies, Inc.’s accounting records include the following for 2018:
Income Tax Savings—Loss on
Discontinued Operations
$ 12,000 Net Sales $
525,000
Loss on Discontinued
Operations
30,000 Operating Expenses
(Including Income Tax)
100,000
Cost of Goods Sold 240,000
Prepare Clix’s multi-step income statement for the year ending December 31, 2018. Omit
earnings per share.
SOLUTION
E13-35 Computing earnings per share
Learning Objective 5
Net Income $10.80
Faccone Academy Surplus had 60,000 shares of common stock and 9,000 shares of 20%, $15 par
value preferred stock outstanding through December 31, 2018. Income from continuing
operations for 2018 was $711,000, and loss on discontinued operations (net of income tax
saving) was $36,000.
Compute Faccone’s earnings per share for 2018, starting with income from continuing
operations. Round to the nearest cent.
SOLUTION
E13-36 Preparing a statement of retained earnings
Learning Objective 6
Retained Earnings Dec. 31, 2018 $93,000
Kelly May Bakery, Inc. reported a prior-period adjustment in 2018. An accounting error caused
net income of prior years to be overstated by $1,000. Retained Earnings at December 31, 2017,
as previously reported, was $48,000. Net income for 2018 was $74,000, and dividends declared
were $28,000. Prepare the company’s statement of retained earnings for the year ended
December 31, 2018.
SOLUTION
E13-37 Computing earnings per share and price/earnings ratio
Learning Objective 7
Rocket Corp. earned net income of $153,040 and paid the minimum dividend to preferred
stockholders for 2018. Assume that there are no changes in common shares outstanding during
2018. Rocket’s books include the following figures:
Preferred Stock—6%, $60 par value; 2,000 shares authorized, 1,000 shares issued and
outstanding $ 60,000
Common Stock—$5 par value; 80,000 shares authorized, 48,000 shares issued, 46,700
shares outstanding 240,000
Paid-In Capital in Excess of Par—Common 470,000
Treasury Stock—Common; 1,300 shares at cost (26,000)
Requirements
1. Compute Rocket’s EPS for the year.
2. Assume Rocket’s market price of a share of common stock is $12 per share. Compute
Rocket’s price/earnings ratio.
SOLUTION
Requirement 1
E13-38 Computing rate of return on common stockholders’ equity
Learning Objective 7
LaSalle Exploration Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income $ 14,800 $ 19,200
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets $ 323,000 $ 314,000
Preferred Stock $ 2,100 $ 2,100
Common Stock 178,000 168,000
Retained Earnings 11,000 7,000
Total Stockholders’ Equity $ 191,100 $ 177,100
Compute rate of return on common stockholders’ equity for 2018 assuming no dividends were
declared or paid to preferred stockholders.
SOLUTION
Problems – Group A
P13-39A Organizing a corporation and issuing stock
Learning Objectives 1, 2
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area.
They must decide how to organize the business. They anticipate profits of $350,000 the first
year, with the ability to sell franchises in the future. Although they have enough to start the
business now as a partnership, cash flow will be an issue as they grow. They feel the corporate
form of operation will be best for the long term. They seek your advice.
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
2. Would you recommend they initially issue preferred or common stock? Why?
3. If they decide to issue $5 par common stock and anticipate an initial market price of $20 per
share, how many shares will they need to issue to raise $2,750,000?
SOLUTION
Requirement 1
