P13-44A Journalizing dividend and treasury stock transactions, preparing a statement of
retained earnings, and preparing stockholders’ equity
Learning Objectives 3, 4, 6
2. Retained Earnings Dec. 31, 2018 $126,550
The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the
following stockholders’ equity:
During 2018, Goldstein completed the following selected transactions:
Feb. 6 Declared a 15% stock dividend on common stock. The market value of
Goldstein’s stock was $25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,300 shares of treasury stock at $25 per share.
Nov.
27
Declared a $0.10 per share cash dividend on the common stock outstanding.
Requirements
1. Record the transactions in the general journal.
2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume
Goldstein’s net income for the year was $90,000.
3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.
P13-44A, cont.
SOLUTION
Requirement 1
P13-45A Computing earnings per share, price/earnings ratio, and rate of return on
common stockholders’ equity
Learning Objective 7
Bianchi Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income $ 34,380 $ 18,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets $ 285,000 $ 280,000
Paid-In Capital:
Preferred Stock—11%, $9 Par Value; 60,000 shares
authorized, 12,000 shares issued and outstanding
$ 108,000 $ 108,000
Common Stock—$2 Par Value; 60,000 shares
authorized, 50,000 shares issued and outstanding
100,000 100,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 60,500 38,000
Total Stockholders’ Equity $ 282,500 $ 260,000
P13-45A, cont.
Requirements
1. Compute Bianchi Company’s earnings per share for 2018. Assume the company paid the
minimum preferred dividend during 2018. Round to the nearest cent.
2. Compute Bianchi Company’s price/earnings ratio for 2018. Assume the company’s market
price per share of common stock is $9. Round to two decimals.
3. Compute Bianchi Company’s rate of return on common stockholders’ equity for 2018.
Assume the company paid the minimum preferred dividend during 2018. Round to the nearest
whole percent.
SOLUTION
Problems – Group B
P13-46B Organizing a corporation and issuing stock
Learning Objectives 1, 2
Jimmy and Randy are opening a comic store. There are no competing comic stores in the area.
They must decide how to organize the business. They anticipate profits of $550,000 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 $3 par common stock and anticipate an initial market price of $75 per
share, how many shares will they need to issue to raise $3,000,000?
SOLUTION
P13-47B Identifying sources of equity, stock issuance, and dividends
Learning Objectives 1, 2, 4
4. Common stock dividends $135,000
Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet
at June 30, 2018:
Requirements
1. Identify the different classes of stock that Tillman Comfort Specialists has outstanding.
2. What is the par value per share of Tillman Comfort Specialists’ preferred stock?
3. Make two summary journal entries to record issuance of all the Tillman Comfort Specialists
stock for cash. Explanations are not required.
4. No preferred dividends are in arrears. Journalize the declaration of a $200,000 dividend at
June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends
Payable accounts for preferred and common stock. An explanation is not required.
SOLUTION
P13-47B, cont.
Requirement 3
P13-48B Journalizing stock issuance and cash dividends and preparing the stockholders’
equity section of the balance sheet
Learning Objectives 2, 4
2. Total Stockholders’ Equity $530,000
C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter
from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, $150 par value
cumulative preferred stock, and 140,000 shares of $3 par value common stock. During the first
month, C-Mobile completed the following transactions:
Oct. 2 Issued 18,000 shares of common stock for a building with a market value of $260,000.
6 Issued 650 shares of preferred stock for $160 per share.
9 Issued 14,000 shares of common stock for cash of $84,000.
10 Declared a $13,000 cash dividend for stockholders of record on Oct. 20. Use a separate
Dividends Payable account for preferred and common stock.
25 Paid the cash dividend.
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of C-Mobile’s balance sheet at October 31, 2018.
Assume C-Mobile’s net income for the month was $95,000.
P13-48B, cont.
SOLUTION
Requirement 1
P13-49B Journalizing dividends and treasury stock transactions and preparing the
stockholders’ equity section of the balance sheet
Learning Objectives 3, 4
1. Nov. 8 Treasury Stock $36,000
Halborn Manufacturing Co. completed the following transactions during 2018:
Jan. 16 Declared a cash dividend on the 6%, $97 par noncumulative preferred stock (1,150 shares
outstanding). Declared a $0.20 per share dividend on the 80,000 shares of $8 par value
common stock outstanding. The date of record is January 31, and the payment date is
February 15.
Feb. 15 Paid the cash dividends.
Jun. 10 Split common stock 2-for-1.
Jul. 30 Declared a 40% stock dividend on the common stock. The market value of the common
stock was $8 per share.
Aug. 15 Distributed the stock dividend.
Oct. 26 Purchased 8,000 shares of treasury stock at $9 per share.
Nov. 8 Sold 4,000 shares of treasury stock for $10 per share.
30 Sold 1,400 shares of treasury stock for $5 per share.
Requirements
1. Record the transactions in Halborn’s general journal.
2. Prepare the Halborn’s stockholders’ equity section of the balance sheet as of December 31,
2018. Assume that Halborn was authorized to issue 2,200 shares of preferred stock and
500,000 shares of common stock. Both preferred stock and common stock were issued at par.
The ending balance of retained earnings as of December 31, 2018, is $2,030,000.
P13-49B, cont.
SOLUTION
Requirement 1
