978-1259722660 Chapter 18 Solution Manual Part 1

AACSB assurance of learning standards in accounting and business education require

documentation of outcomes assessment. Although schools, departments, and faculty may approach

assessment and its documentation differently, one approach is to provide specific questions on exams

that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question,

exercise, and problem in Intermediate Accounting, 9e, with the following AACSB learning skills:

Questions AACSB Tags Exercises AACSB Tags

18–1 Reflective thinking 18–1 Reflective thinking

18–2 Reflective thinking, Communications 18–2 Communications

18–3 Reflective thinking, Communications 18–3 Reflective thinking

18–4 Reflective thinking 18–4 Analytic

18–5 Reflective thinking 18–5 Analytic

18–6 Reflective thinking 18–6 Reflective thinking

18–7 Reflective thinking 18–7 Analytic, Communications

18–8 Reflective thinking 18–8 Analytic

18–9 Reflective thinking 18–9 Analytic

18–10 Reflective thinking 18–10 Analytic

18–11 Reflective thinking 18–11 Analytic

18–12 Reflective thinking 18–12 Analytic

18–13 Reflective thinking 18–13 Analytic

18–14 Reflective thinking 18–14 Analytic

18–15 Reflective thinking 18–15 Analytic, Communications

18–16 Reflective thinking 18–16 Analytic

18–17 Reflective thinking, Communications 18–17 Analytic, Communications

18–18 Reflective thinking 18–18 Analytic

18–19 Reflective thinking 18–19 Analytic

18–20 Reflective thinking 18–20 Analytic

18–21 Reflective thinking 18–21 Reflective thinking, Analytic

18–22 Analytic 18–22 Communications

18–23 Analytic 18–23 Analytic, Communications

18–24 Reflective thinking, Communications 18–24 Reflective thinking, Analytic

Brief Exercises 18–25 Diversity, Reflective thinking

18–1 Analytic CPA/CMA

18–2 Reflective thinking 1 Analytic

18–3 Analytic 2 Analytic

18–4 Analytic 3 Analytic

18–5 Analytic 4 Analytic

18–6 Analytic 5 Reflective thinking

18–7 Analytic 6 Analytic

18–8 Analytic 7 Diversity, Reflective thinking

18–9 Analytic 8 Diversity, Reflective thinking

18–10 Analytic 1 Reflective thinking

18–11 Analytic 2 Analytic

18–12 Analytic 3 Reflective thinking

18–13 Analytic

18–14 Analytic

18–15 Analytic

18–16 Diversity, Reflective thinking

Solutions Manual, Vol.2, Chapter 18 18–&

Chapter 18 Shareholders’ Equity

Problems

18–1 Analytic

18–2 Analytic

18–3 Analytic

18–4 Analytic

18–5 Analytic

18–6 Analytic

18–7 Reflective thinking, Analytic

18–8 Analytic

18–9 Analytic

18–10 Reflective thinking

18–11 Analytic

18–12 Analytic

18–13 Analytic

Question 18–1

The two primary sources of shareholders’ equity are amounts invested by shareholders in the

Question 18–2

The three primary ways a company can be organized are (1) a sole proprietorship, (2) a

partnership, or (3) a corporation. Transactions are accounted for the same regardless of the form of

Question 18–3

In the eyes of the law, a corporation is a separate legal entity—separate and distinct from its

owners. The owners are not personally liable for debts of the corporation. So, shareholders

Question 18–4

“Not-for-profit” corporations such as churches, hospitals, universities, and charities, are not

Question 18–5

Solutions Manual, Vol.2, Chapter 18 18–&

Questions for Review of Key Topics

Corporations that are organized for profit may be publicly held or privately (or closely) held.

The stock of publicly held corporations is available for purchase by the general public. Shares might

Solutions Manual, Vol.2, Chapter 18 18–&

Answers to Questions (continued)

Question 18–6

Corporations are formed in accordance with the corporation laws of individual states. The

Question 18–7

The ownership rights held by common shareholders, unless specifically withheld by agreement

with the shareholders, are:

a. The right to vote on policy issues.

Question 18–8

The “preemptive right” is the right to maintain one’s percentage share of ownership when new

Question 18–9

The typical rights of preferred shares usually include one or both of the following:

a. A preference to a predesignated amount of dividends, that is, a stated dollar amount per share

Question 18–10

If preferred shares are noncumulative, dividends not declared in any given year need never be

Solutions Manual, Vol.2, Chapter 18 18–&

Answers to Questions (continued)

Question 18–11

Par value was defined by early corporation laws as the amount of net assets not available for

distribution to shareholders (as dividends or otherwise). However, now the concepts of “par value”

Question 18–12

Comprehensive income is a broader view of the change in shareholders’ equity than traditional

net income. It is the total nonowner change in equity for a reporting period. It encompasses all

Two attributes of other comprehensive income are reported: (1) components of comprehensive

The components of comprehensive income created during the reporting period can be reported

in either (a) an expanded version of the income statement or (b) a separate statement immediately

Question 18–13

Components of comprehensive income created during the reporting period can be reported in

either (a) an expanded version of the income statement or (b) a separate statement immediately

Solutions Manual, Vol.2, Chapter 18 18–&

Answers to Questions (continued)

Question 18–14

The statement of shareholders’ equity reports the transactions that cause changes in its

Question 18–15

The measurement objective is that the transaction should be recorded at fair value. This might be

Question 18–16

The cash received usually is the sum of the separate market values of the separate securities.

Question 18–17

Share issue costs reduce the net cash proceeds from selling the shares and thus paid-in capital—

While debt issue costs are similarly treated in that they reduce the proceeds from issuing debt,

The difference in accounting treatment often is justified by the presumption that share issue costs

Solutions Manual, Vol.2, Chapter 18 18–&

Answers to Questions (continued)

Question 18–18

The same accounts that previously were increased when the shares were sold are decreased when

If the cash paid to repurchase the shares differs from the amount originally paid in, accounting

for the difference depends on whether the cash paid to repurchase the shares is less than or more than

Question 18–19

The purchase of treasury stock and its subsequent resale are considered to be a “single

transaction.” The purchase of treasury stock is perceived as a temporary reduction of shareholders’

Question 18–20

For a stock dividend of less than 25%, a “small” stock dividend, the fair value of the additional

This is not logical. If the value of each share were to remain the same when additional shares are

Solutions Manual, Vol.2, Chapter 18 18–&

Answers to Questions (concluded)

Question 18–21

The effect and maybe the motivation for the 2-for-1 stock split is to reduce the per share market

price (by half). This will likely increase the stock’s marketability by making it attractive to a larger

number of potential investors. The appropriate accounting treatment of a stock split is to make no

Question 18–22

When a company decreases, rather than increases, its outstanding shares, a reverse stock split

Question 18–23

You would be entitled to 3.2 shares (4% x 80 shares). Since cash in lieu of payments usually are

Question 18–24

A quasi reorganization allows a company to (1) write down inflated asset values and (2)

eliminate an accumulated deficit in retained earnings. The following steps are taken:

1. Assets and liabilities are revalued to reflect their fair values, with corresponding credits or

Brief Exercise 18–1

Two attributes of other comprehensive income are reported: (1) the components

of comprehensive income created during the reporting period ($15 million in this

Solutions Manual, Vol.2, Chapter 18 18–&

BRIEF Exercises

The $50 million represents the cumulative sum of the changes in each component

Brief Exercise 18–2

($ in millions)

Cash (8 million shares x $12 per share)…………………………….. 96

Brief Exercise 18–3

Journal entry (not required):

Legal expense (4,000 hours x $240)………………………………. 960,000

Brief Exercise 18–4

Hamilton’s shareholders’ equity will increase by $3,500,000 as a result of this

transaction.

Journal entry (not required):

Solutions Manual, Vol.2, Chapter 18 18–&