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SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 11-1
The advantages and disadvantages of a corporation are as follows:
Advantages
Disadvantages
Separate legal existence
Limited liability of stockholders
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management—
professional managers
Corporation management—
separation of ownership
and management
Government regulations
Additional taxes
BRIEF EXERCISE 11-2
May 10 Cash (2,000 X $18) ........................................ 36,000
BRIEF EXERCISE 11-3
June 1 Cash (4,000 X $6).......................................... 24,000
BRIEF EXERCISE 11-4
Land (5,000 X $15) ......................................................... 75,000
BRIEF EXERCISE 11-5
Sept. 1 Cash (300 X $11) ........................................... 3,300
BRIEF EXERCISE 11-6
Cash (5,000 X $130) ....................................................... 650,000
BRIEF EXERCISE 11-7
Dec. 31 Dividends Payable ........................................... 80,000
BRIEF EXERCISE 11-8
Dec. 1 Stock Dividends (7,500 X $16) ....................... 120,000
31 Common Stock Dividends Distributable ...... 75,000
BRIEF EXERCISE 11-9
Before
Dividend
After
Dividend
(a)
Stockholders’ equity
Paid-in capital
Common stock, $10 par
In excess of par
Total paid-in capital
Retained earnings
Total stockholders’ equity
$2,000,000
—
2,000,000
500,000
$2,500,000
$2,200,000
80,000
2,280,000
220,000
$2,500,000
(b)
Outstanding shares
200,000
220,000
(c)
Par value per share
$10.00
$10.00
BRIEF EXERCISE 11-10
SOTO INC.
Retained Earnings Statement
For the Year Ended December 31, 2015
Balance, January 1 ........................................................................ $220,000
BRIEF EXERCISE 11-11
PALMER INC.
Retained Earnings Statement
For the Year Ended December 31, 2015
Balance, January 1, as reported ................................ $800,000
Correction for overstatement of net income
in prior period (depreciation expense error) ........ (50,000)
BRIEF EXERCISE 11-12
Stockholders’ equity
Paid-in capital
Capital stock
Common stock, $10 par value, 5,000 shares
issued and 4,500 shares outstanding ..................... $ 50,000
Additional paid-in capital
In excess of par—common stock ................................ 30,000
BRIEF EXERCISE 11-13
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 11-1
DO IT! 11-2
(a) Income Summary ................................................. 236,000
(b) Stockholders’ equity
Paid-in capital
Common stock ........................................ $1,000,000
DO IT! 11-3
Apr. 1 Cash ............................................................... 780,000
Apr. 19 Organization Expense ................................. 27,500
DO IT! 11-4
Aug. 1 Treasury Stock ............................................... 130,000
Dec. 1 Cash ................................................................. 86,400
DO IT! 11-5
1. The company has not missed past dividends and the preferred stock is
2. The preferred stock is noncumulative; thus, past unpaid dividends do
not have to be paid. The dividend paid to preferred stockholders would
3. The preferred stock is cumulative; thus, dividends that have been missed
DO IT! 11-6
(2) The retained earnings after the stock split would be the same as it
(b) (1) and (2) The effects on the equity accounts are as follows:
Original
Balances
After
Dividend
After Split
Paid-in capital
Retained earnings
Total stockholders’ equity
Shares outstanding
$ 4,800,000
12,000,000
$16,800,000
400,000
$ 7,560,000
9,240,000
$16,800,000
460,000
$ 4,800,000
12,000,000
$16,800,000
800,000
DO IT! 11-7
FOLEY CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2015
Balance, January 1, as reported .............................. $3,100,000
Correction for understatement of net
DO IT! 11-8
(a)
2014
2015
Return on common
stockholders’ equity
($100,000–$30,000) = 10.4%
($600,000 + $750,000) /2
($110,000–$30,000) = 10.1%
($750,000 + $830,000)/2
(b) Between 2014 and 2015, return on common stockholders’ equity de-
creased from 10.4% to 10.1%. It is important to note that even though net
income increased during this period average common stockholders’
equity increased move causing the return percentage to slightly
decrease.
SOLUTIONS TO EXERCISES
EXERCISE 11-1
than partnerships or proprietorships.
EXERCISE 11-2
an investment banking firm.
EXERCISE 11-2 (Continued)
EXERCISE 11-3
(a) Jan. 10 Cash (70,000 X $5) .................................. 350,000
July 1 Cash (40,000 X $7) .................................. 280,000
(b) Jan. 10 Cash (70,000 X $5) .................................. 350,000
July 1 Cash (40,000 X $7) .................................. 280,000
EXERCISE 11-4
(a) Cash .......................................................................... 52,000
