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P13-50B Preparing an income statement
Learning Objective 5
Net Income $37,840
The following information was taken from the records of Arizona Motorsports, Inc. at November
30, 2018:
Selling Expenses
Administrative Expenses
Income from Discontinued
Operations
Cost of Goods Sold
Treasury Stock—Common (1,500
shares)
Net Sales Revenue
$ 95,000
150,000
2,400
470,000
19,500
801,400
Common Stock, $11 Par Value,
13,500 shares authorized and
issued
$
148,500
Preferred Stock, $2 No-Par
Value, 2,000 shares issued 60,000
Income Tax Expense: Continuing
Operations 50,000
Income Tax Expense: Income
from Discontinued Operations 960
Prepare a multi-step income statement for Arizona Motorsports for the fiscal year ended
November 30, 2018. Include earnings per share.
P13-50B, cont.
SOLUTION
P13-51B 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 $218,280
The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the
following stockholders’ equity:
During 2018, Cullins completed the following selected transactions:
Feb. 6 Declared a 5% stock dividend on common stock. The market value of Cullins’s stock was
$25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,000 shares of treasury stock at $25 per share.
Nov. 27 Declared a $0.20 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
Cullins’s net income for the year was $87,000.
3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.
P13-51B, cont.
SOLUTION
Requirement 1
P13-51B, cont.
Requirement 3
P13-52B Computing earnings per share, price/earnings ratio, and rate of return on
common stockholders’ equity
Learning Objective 7
Gullo Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income $ 18,900 $ 24,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets $ 285,000 $ 200,000
Paid-In Capital:
Preferred Stock—11%, $9 Par Value; 60,000 shares
authorized, 10,000 shares issued and outstanding
$ 90,000 $ 90,000
Common Stock—$1 Par Value; 45,000 shares authorized,
30,000 shares issued and outstanding
30,000 30,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 51,000 42,000
Total Stockholders’ Equity $ 185,000 $ 176,000
P13-52B, cont.
Requirements
1. Compute Gullo Company’s earnings per share for 2018. Assume the company paid the
minimum preferred dividend during 2018. Round to the nearest cent.
2. Compute Gullo 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 Gullo 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
Requirement 1
Using Excel
P13-53 Using Excel for stockholders’ equity transactions and preparing financial
statements
Naxion Corporation began operations on January 2, 2018, and had the following transactions
during the year:
Jan. 2 Issued 250,000 shares of $1 par value common stock at $45 per share.
Total shares authorized: 1,000,000.
Feb. 5 Issued 10,000 shares of $50 par, 5% cumulative preferred stock at $65 per
share. Total shares authorized: 25,000.
Mar. 15 Issued 150,000 shares of $1 par value common stock at $35 per share.
Apr. 2 Declared a $2.50 per share cash dividend on its preferred stock to be paid
on April 25. Date of record is April 10.
3 Declared a $0.10 per share cash dividend on its common stock to be paid
on April 26. Date of record is April 10.
Jun. 1 Declared a 2% stock dividend on all common stock outstanding. Current
market price of the stock was $48 per share. Date of record is June 15.
30 Distributed common stock dividend to shareholders.
Oct. 10 Purchased 2,500 shares of treasury stock—common at $52 per share.
Nov. 15 Sold 2,000 shares of treasury stock—common at $54 per share.
P13-53, cont.
Requirements
1. Journalize Naxion’s transactions for 2018.
2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018,
including the heading. Assume Naxion had net income of $15,000,000 during 2018. This is
the first year of operations.
3. Determine Naxion’s earnings per share for 2018, rounded to two decimal places. For the
average number of common shares outstanding, average the number of shares outstanding on
January 2 and December 31.
4. Assuming Naxion’s market value per common share as of December 31, 2018, was $55,
calculate Naxion’s price/earnings ratio for 2018, rounded to two decimal places.
SOLUTION
Continuing Problem
P13-54 Journalizing stock issuances, cash dividends, and stock dividends; preparing
stockholders’ equity section of balance sheet
This problem continues the Canyon Canoe Company situation from Chapter 12. After looking
into debt financing through notes, mortgage, and bonds payable, Canyon Canoe Company
decides to raise additional capital for the planned business expansion. The company will be able
to acquire cash as well as land adjacent to its current business location. Before the following
transactions, the balance in Common Stock on January 1, 2021, was $136,000 and included
136,000 shares of common stock issued and outstanding. (There was no Paid-In Capital in
Excess of Par—Common.)
Canyon Canoe Company had the following transactions in 2021:
Jan. 1 Issued 50,000 shares of $1 par value common stock for a total of $200,000.
10 Issued 20,000 shares of 4%, $3 par value preferred stock in exchange for
land with a market value of $70,000.
Dec. Declared total cash dividends of $15,000.
15
20 Declared an 8% common stock dividend when the market value of the stock
was $4.50 per share.
31 Paid the cash dividends.
31 Distributed the stock dividend.
Requirements
1. Journalize the transactions.
2. Calculate the balance in Retained Earnings on December 31, 2021. Assume the balance on
January 1, 2021 was $4,250 and net income for the year was $417,000.
3. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. There
was no preferred stock issued prior to the 2021 transactions.
P13-54 , cont.
SOLUTION
Requirement 1
P13-54, cont.
