CHAPTER 11
Corporations: Organization, Stock Transactions,
Dividends, and Retained Earnings
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
A
Problems
B
Problems
*1. Identify the major
characteristics of a
corporation.
1, 2, 3, 4,
5, 6
1
1, 2
*2. Record the issuance of
common stock.
7, 8, 9,
10, 11
2, 3, 4
3
1A, 3A, 6A
1B, 3B
*3. Explain the accounting for
treasury stock.
12, 13, 14
5
4
2A, 3A, 6A
2B, 3B
*4. Differentiate preferred
stock from common stock.
15
6
1A, 3A, 6A
1B, 3B
*5. Prepare the entries for
cash dividends and stock
dividends.
18, 19, 20,
21, 22, 23
7, 8, 9
5, 6
4A, 5A, 7A
4B, 6B
*6. Identify the items reported
in a retained earnings
statement.
16, 24, 25
10, 11
7
17, 18
5A
5B, 6B
7. Prepare and analyze a
comprehensive
stockholders’ equity
section.
17
12
8
10, 11, 19,
20, 21, 22,
23
1A, 2A, 3A,
4A, 5A, 6A,
7A, 8A, 9A
1B, 2B, 3B,
4B, 5B, 6B,
7B
*8. Describe the use and
content of the
stockholders’ equity
statement.
9A
*9 Compute book value per
share.
26, 27
13
8A
7B
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the
chapter.
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize stock transactions, post, and prepare paid-in
capital section.
Simple
30–40
2A
Journalize and post treasury stock transactions, and
prepare stockholders’ equity section.
Moderate
25–35
3A
Journalize and post transactions, prepare stockholders’
equity section.
Moderate
40–50
4A
Prepare dividend entries and stockholders’ equity section.
Moderate
30–40
5A
Prepare retained earnings statement and stockholders’
equity section, and compute allocation of dividends.
Moderate
30–40
6A
Prepare entries for stock transactions and prepare
stockholders’ equity section.
Moderate
30–40
7A
Prepare dividend entries and stockholders’ equity section.
Moderate
30–40
*8A
Prepare stockholders’ equity section; compute book value
per share.
Simple
20–30
*9A
Prepare stockholders’ equity statement.
Simple
20–30
1B
Journalize stock transactions, post, and prepare paid-in
capital section.
Simple
30–40
2B
Journalize and post treasury stock transactions, and
prepare stockholders’ equity section.
Moderate
25–35
3B
Journalize and post transactions, prepare stockholders’
equity section.
Moderate
40–50
4B
Prepare dividend entries and stockholders’ equity section.
Moderate
30–40
5B
Prepare retained earnings statement and stockholders’
equity section.
Moderate
30–40
6B
Prepare retained earnings statement and stockholders’
equity section, and compute allocation of dividends.
Moderate
30–40
*7B
Prepare stockholders’ equity section; compute book value
per share.
Simple
20–30
WEYGANDT FINANCIAL ACCOUNTING 9E
CHAPTER 11
CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS,
DIVIDENDS, AND RETAINED EARNINGS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
K
Simple
4–6
BE2
2
AP
Simple
2–3
BE3
2
AP
Simple
2–3
BE4
2
AP
Simple
2–4
BE5
3
AP
Simple
4–6
BE6
4
AP
Simple
2–3
BE7
5
AP
Simple
2–4
BE8
5
AP
Simple
4–6
BE9
5
AP
Simple
6–8
BE10
6
AP
Simple
3–5
BE11
6
AP
Simple
4–6
BE12
7
AP
Simple
4–6
BE13
9
AP
Simple
2–4
DI1
1
K
Simple
2–4
DI2
1
AP
Simple
4–6
DI3
2
AP
Simple
4–6
DI4
3
AP
Simple
4–6
DI5
5
AP
Simple
6–8
DI6
5
AP
Simple
6–8
DI7
6
AP
Simple
4–6
DI8
7
AP
Simple
6–8
EX1
1
K
Simple
6–8
EX2
1, 2
K
Simple
6–8
EX3
2
AP
Simple
6–8
EX4
2
AP
Simple
8–10
EX5
3
AP
Simple
8–10
EX6
4
AP
Simple
6–8
EX7
2–4
AP
Simple
6–8
EX8
2
AP
Simple
4–6
EX9
3
AP
Simple
8–10
EX10
4, 7
AP
Simple
8–10
EX11
2–4, 7
C
Simple
6–8
EX12
2–4
AN
Moderate
8–10
EX13
5
AP
Simple
6–8
EX14
5
AP
Simple
4–6
CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS,
DIVIDENDS, AND RETAINED EARNINGS
Number
LO
BT
Difficulty
Time (min.)
EX15
5
AP
Simple
6–8
EX16
5
AN
Moderate
5–7
EX17
6
AP
Simple
4–6
EX18
6
AP
Simple
4–6
EX19
7
C
Simple
4–6
EX20
7
AP
Simple
8–10
EX21
7
AP
Simple
6–8
EX22
7
AP
Simple
6–8
EX23
7, 9
AP
Simple
10–12
EX24
4, 9
AP
Simple
6–8
P1A
2, 4, 7
AP
Simple
30–40
P2A
3, 7
AP
Moderate
25–35
P3A
2–4, 7
AP
Moderate
40–50
P4A
5, 7
AP
Moderate
30–40
P5A
5, 6, 7
AP
Simple
20–30
P6A
2–4, 7
AP
Moderate
20–30
P7A
5, 7
AP
Moderate
30–40
P8A
7, 9
AP
Simple
20–30
P9A
7, 8
AP
Simple
20–30
P1B
2, 4, 7
AP
Simple
30–40
P2B
3, 7
AP
Moderate
25–35
P3B
2–4, 7
AP
Moderate
40–50
P4B
5, 7
AP
Moderate
30–40
P5B
6, 7
AP
Moderate
30–40
P6B
5, 6, 7
AP
Moderate
30–40
P7B
7, 9
AP
Simple
20–30
BYP1
1
AP
Simple
10–15
BYP2
7, 9
AN
Simple
15–20
BYP3
3
AN
Simple
15–20
BYP4
1, 3, 4
S
Moderate
15–20
BYP5
1, 4
AP
Simple
10–15
BYP6
—
E
Simple
10–15
BYP7
1
E
Simple
15–20
BYP8
5
AP
Simple
10–15
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Identify the major characteristics of a
corporation.
Q11-4
Q11-5
Q11-6
BE11-1
DI11-1
E11-1
E11-2
Q11-1
Q11-2
Q11-3
BE11-1
DI11-2
2. Record the issuance of common stock.
E11-2
Q11-8
Q11-9
Q11-10
Q11-11
E11-11
Q11-7
BE11-2
BE11-3
BE11-4
DI11-3
E11-3
E11-4
E11-7
E11-8
P11-1A
P11-3A
P11-6A
P11-1B
P11-3B
E11-12
3. Explain the accounting for treasury
stock.
Q11-12
Q11-13
Q11-14
E11-11
BE11-5
DI11-4
E11-5
E11-7
E11-9
P11-2A
P11-3A
P11-6A
P11-2B
P11-3B
E11-12
4. Differentiate preferred stock from
common stock.
Q11-15
E11-11
BE11-6
E11-6
E11-7
E11-10
E11-24
P11-1A
P11-3A
P11-6A
P11-1B
P11-3B
E11-12
5. Prepare the entries for cash dividends
and stock dividends.
Q11-18
Q11-19
Q11-20
Q11-21
Q11-22
Q11-23
BE11-7
BE11-8
BE11-9
DI11-5
DI11-6
E11-13
E11-14
E11-15
P11-4A
P11-5A
P11-7A
P11-4B
P11-6B
E11-16
6. Identify the items reported in a retained
earnings statement.
Q11-16
Q11-24
Q11-25
BE11-10
BE11-11
DI11-7
E11-17
E11-18
P11-5A
P11-5B
P11-6B
7. Prepare and analyze a comprehensive
stockholders’ equity section.
Q11-17
E11-11
E11-19
BE11-12
DI11-8
E11-10
E11-20
E11-21
E11-22
E11-23
P11-1A
P11-2A
P11-3A
P11-4A
P11-5A
P11-6A
P11-7A
P11-8A
P11-9A
P11-1B
P11-2B
P11-3B
P11-4B
P11-5B
P11-6B
P11-7B
*8. Describe the use and content of the
stockholders’ equity statement.
P11-9A
*9. Compute book value per share.
Q11-27
Q11-26
BE11-13
E11-23
E11-24
P11-8A
P11-7B
Broadening Your Perspective
Real-World Focus
Financial Reporting
Communication
FASB Codification
Comparative
Analysis
Decision-Making
Across the
Organization
Ethics Case
All About You
ANSWERS TO QUESTIONS
1. (a) Separate legal existence. A corporation is separate and distinct from its owners and it acts
in its own name rather than in the name of its stockholders. In contrast to a partnership, the
of the corporation.
(b) Limited liability of stockholders. Because of its separate legal existence, creditors of a corpora-
tion ordinarily have recourse only to corporate assets to satisfy their claims. Thus, the liability
of the stockholder.
2. (a) Corporation management is an advantage to a corporation because it can hire professional
managers to run the company. Corporation management is a disadvantage to a corporation
stock to the general public. Corporations must pay both federal and state income taxes. These
taxes are substantial. In addition, stockholders must pay income taxes on cash dividends
received.
3. (a) (1) A charter is a document that creates a corporation. A charter is also referred to as the
articles of incorporation.
the corporation.
(3) Organization costs are costs incurred in the formation of a corporation. Organization
costs are expensed as incurred.
office or major operating facilities.
4. In the absence of restrictive provisions, the basic ownership rights of common stockholders are
the rights to:
approval.
(b) share in corporate earnings through the receipt of dividends.
preemptive right).
(d) share in assets upon liquidation.
5. (a) The two principal components of stockholders’ equity for a corporation are paid-in capital
(the investment of cash and other assets in the corporation by stockholders in exchange for
income.
(b) Paid-in capital is the term used to describe the total amount paid-in on capital stock. Paid-in
capital may result through the sale of common stock, preferred stock, or treasury stock.
Questions Chapter 11 (Continued)
6. Each of the three basic financial statements for a corporation differs from those for a proprietorship.
7. The maximum number of shares that a corporation is legally allowed to issue is the number
outstanding (70,000 issued less 7,000 treasury).
8. The par value of common stock has no effect on its market value. Par value is a legal amount per
the economy, and the current state of the securities markets. Therefore, either investment mentioned
9. Among the factors which influence the market value of stock are the company’s anticipated
10. The sale of common stock below par value is not permitted in most states.
11. When stock is issued for services or noncash assets, the cost should be measured at either
actively traded in the securities market. The appraised value of the land is merely an estimate of
12. A corporation may acquire treasury stock: (1) to reissue the shares to officers and employees
(4) to reduce the number of shares outstanding and thereby increase earnings per share, (5) to
13. When treasury stock is purchased, Treasury Stock is debited and Cash is credited at cost
Questions Chapter 11 (Continued)
14. When treasury stock is resold at a price above original cost, Cash is debited for the amount of the
total assets, (c) increases total paid-in capital, and (d) increases total stockholders’ equity.
15. (a) Common stock and preferred stock both represent ownership of the corporation. Common stock
(b) Some preferred stocks possess the additional feature of being cumulative. Most preferred
16. The debits and credits to retained earnings are:
Debits
Credits
1.
Net loss
1.
Net income
2.
Prior period adjustments for
overstatement of net income
2.
Prior period adjustments for
understatement of net income
3.
Cash and stock dividends
4.
Some disposals of treasury stock
17. The answers are summarized in the table below:
Account
Classification
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Common Stock
Paid-in Capital in Excess of Par—
Common Stock
Retained Earnings
Treasury Stock
Paid-in Capital from Treasury Stock
Paid-in Capital in Excess of Stated
Value—Common Stock
Preferred Stock
Paid-in capital—capital stock
Paid-in capital—additional paid-in capital
Retained earnings
Deducted from total paid-in capital and retained
earnings
Paid-in capital—additional paid-in capital
Paid-in capital—additional paid-in capital
Paid-in capital—capital stock
18. In order for a cash dividend to occur, a corporation must also have retained earnings and the
Questions Chapter 11 (Continued)
19. (a) The three dates are:
Declaration date is the date when the board of directors formally declares the cash dividend
and announces it to stockholders. The declaration commits the corporation to a binding legal
obligation that cannot be rescinded.
Record date is the date that marks the time when ownership of the outstanding shares is
determined from the stockholder records maintained by the corporation. The purpose of this
date is to identify the persons or entities that will receive the dividend.
Payment date is the date on which the dividend checks are mailed to the stockholders.
(b) The accounting entries and their dates are:
Declaration date—Debit Cash Dividends and Credit Dividends Payable.
No entry is made on the record date.
Payment date—Debit Dividends Payable and Credit Cash.
20. A cash dividend decreases assets, retained earnings, and total stockholders’ equity. A stock dividend
decreases retained earnings, increases paid-in capital, and has no effect on total assets and total
stockholders’ equity.
21. A corporation generally issues stock dividends for one of the following reasons:
(a) To satisfy stockholders’ dividend expectations without spending cash.
(b) To increase the marketability of its stock by increasing the number of shares outstanding
and thereby decreasing the market price per share. Decreasing the market price of the stock
makes the shares easier to purchase for smaller investors.
(c) To emphasize that a portion of stockholders’ equity that had been reported as retained
earnings has been permanently reinvested in the business and therefore is unavailable for
cash dividends.
$60 per share ($120 ÷ 2).
23. The different effects of a stock split versus a stock dividend are:
Item
Stock Split
Stock Dividend
Total paid-in capital
Total retained earnings
Total par value (common stock)
Par value per share
No change
No change
No change
Decrease
Increase
Decrease
Increase
No Change
beginning balance of retained earnings.
25. The purpose of a retained earnings restriction is to indicate that a portion of retained earnings is
currently unavailable for dividends. Restrictions may result from the following causes: legal, contractual,
or voluntary.
Questions Chapter 11 (Continued)
*26. The formula for computing book value per share when a corporation has only common stock
outstanding is:
Total
Stockholders’
Equity
÷
Number of
Common Shares
Outstanding
=
Book
Value
per Share
*27. Par value is a legal amount per share, often set at an arbitrarily selected amount, which
usually indicates the minimum amount at which a share of stock can be issued. Book value
per share represents the equity a common stockholder has in the net assets of the
corporation from owning one share of stock. If the corporation has been reinvest ing some of
the securities markets.