(10-15 min.) P 10-80B
Req. 1
Jackson Corp.
Balance Sheet (partial)
December 31, 2016
Stockholders’ equity:
Preferred stock, 6%, $110 par, 9,000 shares authorized,
2,250 shares issued and outstanding ……………………….
$247,500
Common stock, no-par, 450,000 shares authorized,
112,500 shares issued and outstanding ……………………
Total paid-in capital …………………………………………………….
Retained earnings ……………………………………………………….
_____
Computations:
Preferred stock: 2,250 × $110 = $247,500
Retained earnings: $73,000 + $96,000 − ($247,500 × 0.06 x 2) –
(112,500 x $0.40) = $94,300
(25-35 min.) P 10–81B
Req. 1
Classic Outdoor Furniture Company has Class A cumulative preferred
stock, Class B cumulative preferred stock, and common stock
outstanding.
Req. 2
Journal
DATE
DEBIT
CREDIT
2,765,000
2,765,000
Cash …………………………………………..
Class B Preferred Stock …………..
3,115,000
Cash ($1,200,000 + $5,540,000) …….
Common Stock ………………………..
Common ………………………………
Req. 3
Classic Outdoor Furniture would have to pay all preferred dividends in
arrears before paying dividends to common stockholders because the
preferred stock is cumulative.
(continued) P 10-81B
Req. 4
Classic must pay preferred dividends of $352,800* each year to avoid
having preferred dividends in arrears.
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2017
Feb.
28
Retained Earnings …………………………………..
870,000
Dividends Payable, Class A
Preferred ($165,900 × 2). ………………….
331,800
Preferred ($186,900 × 2) …………………..
373,800
Dividends Payable, Common ……………….
_____
Computations:
*Class A Preferred: 79,000 shares × $35 (par) per share × 0.06 = $ 165,900
Class B Preferred: 89,000 shares × $35 (par) per share × 0.06 = 186,900
(15-20 min.) P 10-82B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Feb.
13
Cash (4,900 × $8) ……………………………………..
39,200
Common Stock (4,900 × $5) ………………….
24,500
Paid-in Capital in Excess of Par −
Common ………………………………………….
14,700
June
7
Retained Earnings ……………………………………
Dividends Payable (200 shares × $0.90) ….
24
Dividends Payable ……………………………………
Cash …………………………..………………………
Aug.
9
Retained Earnings
(11,000 shares × .15 × $9) ………………………….
14,850
Common Stock (11,000 × .15 × $5) ………..
8,250
Paid-in Capital in Excess of Par −
Common ………………………………………….
6,600
26
Treasury Stock, Common (1,000 × $14) ……..
Cash …………………………..………………………
14,000
Nov.
20
Cash (800 × $19) ………………………………………
15,200
Treasury Stock, Common (800 × $14) ……
Paid-in Capital from Treasury
Stock Transactions …………………………..
4,000
Dec.
31
Retained Earnings [(12,650* – 200) x $0.25] .
3,113
Dividends Payable ……………………………….
3,113
*6,100 + 4,900 + 1,650 = 12,650 shares issued
(continued) P 10-82B
Req. 2
Stockholders’ equity:
$0.90 cumulative preferred stock, $20 par, 200 shares
issued and outstanding …………………………………………………..
$ 4,000
Common stock, $5 par, 12,650 shares issued ($30,500 +
$24,500 + $8,250) and 12,450 shares outstanding ……………..
63,250
Paid-in capital in excess of par – common
($17,300 + $14,700 + $6,600) …………………………………………….
Retained earnings ($29,000 + $23,000 − $180 − $14,850 − $3,113)..
Less: Treasury stock, common, 200 shares at cost
Total stockholders’ equity ………………………………………………
(20-30 min.) P 10-83B
Req. 1 and 2
ASSETS
=
LIABILITIES
+
STOCKHOLDERS’
EQUITY
CASH
FLOW
Feb.
3
$416,000
=
$ 0
+
$416,000
$+416,000
Mar.
19
(59,400)
=
0
+
(59,400)
-59,400
Apr.
24
=
+
Aug.
15
=
+
Sept.
1
( 9,600)
=
+
Nov.
22
=
+
(40-50 min.) P 10-84B
Req. 1
Ginger Designers, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Current:
Current:
Cash ………………………..
$ 50,000
Accounts payable ………………..
$130,000
Accounts receivable,
Accrued liabilities ………………..
26,000
net ………………………..
Inventory …………………
Total current liabilities …………….
Prepaid
expenses ………………
Total current assets …….
Total liabilities ………………………..
Property, plant,
STOCKHOLDERS’
and equipment,
EQUITY
net …………………………..
363,000
Common stock,
Intangible assets:
$2 par, 1,500,000 shares
Trademarks, net ……….
6,000
authorized, 112,000
Goodwill…………………..
16,000
shares issued and 103,000
shares outstanding ……………..
224,000
Retained earnings …………………..
Less: Treasury stock,
at cost …………………………………
Total liabilities and
Total assets …………………
$563,000
_____
*Retained earnings = Total assets − Total liabilities − Total paid-in capital +
Treasury stock = $563,000 −$256,000 − $224,000 − $16,000 + $25,000 = $92,000
(continued) P 10-84B
Req. 2
Net
profit
=
Net income
=
$32,000
=
4.92%
margin
Net sales
$650,000
ratio
Net sales
=
=
=
Average total
ROA
x
Leverage
=
ROE
ratio
6.1%
1.904
=
11.6%
(continued) P 10-84B
Req. 3
These rates of return suggest weakness. The company is generating a
6.1% net profit margin ratio indicating some effectiveness in achieving
profit goals and perhaps some product differentiation. The company is
generating an asset turnover of 1.23, meaning $1.23 in sales for each
dollar of assets invested, indicating some efficiency. Finally, the
company has relatively moderate leverage, meaning they are utilizing
(15-20 min.) P 10-85B
Req. 1
Par value of common stock:
Req. 2
Price per share of stock issuance:
$220 million
received
=
$1.10 per share
200 million shares
issued
Req. 3
Req. 4
Stock dividend percentage:
$106 million
=
20%
$430 million + $100 million
Challenge Exercises and Problem
(20-25 min.) E 10-86
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
(a)
Cash (52,000* × $6) …………………………………
312,000
Common Stock …………………………..……..
52,000
Additional Paid-in Capital …………………..
260,000
Issued stock.
(b)
Treasury Stock (1,300 × $11) ………………….
Cash ………………………………………………..
Purchased treasury stock.
(c)
Cash …………………………………………………….
Additional Paid-in Capital …………………..
(d)
Revenues ……………………………………………..
171,000
Expenses …………………………………………
119,000
Retained Earnings …………………………….
52,000
Closed net income to Retained Earnings.
(d)
Cash ………………………………………………..
Declared and paid dividends.
(20-25 min.) E 10-87
Statement of cash flows:
Cash Flows from Financing Activities:
Issuance of common stock ……………………………………
$312,000
Purchase of treasury stock ……………………………………
Sale of treasury stock ……………………………………………
Payment of dividends ……………………………………………
(15 min.) E 10-88
Preferred stock:
Atlantic retired preferred stock of $124 million ($730 − $606)
Common stock and Additional paid-in capital:
Atlantic issued 22 million shares of common
stock for $66 million, computed as follows:
Millions
Common stock ($906 − $884) …………………………………..
Total received for issuance of common stock …………..
Retained earnings:
Millions
Beginning balance ………………………………………………………
$19,108
Add: Net income………………………………………………………….
2,940
Less: Dividends declared …………………………………………….
Ending balance …………………………………………………………..
$20,650
Treasury stock:
Atlantic purchased treasury stock for $195 million ($2,800 − $2,605).
(15 min.) E 10-89
Req. 1
Additional
Amounts in Millions
Common
Stock
+
Paid-in
Capital
+
Retained
Earnings
−
Treasury
Stock
=
Total
Equity
Balance, Dec. 31, 2016 ….
$ 9.01
$9.0
$36.0
$54.0
Issuance of stock …………
4.02
4.02
8.0
Stock dividend ……………..
1.33
11.75
(13.0)4
—
Purchase of treasury
stock ………………………
Net income …………………..
Cash dividends …………….
(13.0)
Balance, Dec. 31, 2017 ….
$39.0
Computations:
1$9,000,000 ÷ $1 par = 9,000,000 shares
24,000,000 × $1 par = $4,000,000
4,000,000 × ($2 − $1) = $4,000,000
(20-25 min.) P 10-90
Req. 1
Req.2
960,000 (1,000,000 shares issued – 40,000 shares in treasury)
Req. 3
Req. 4
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ………………………………………………………. 4,770,000
Common Stock ($350,000 – $315,000) … 35,000
Paid-in Capital in Excess of Par
($34,850,000 – $30,115,000) ……………. 4,735,000
Req. 5
(continued) P 10-90
Req. 6
Cost of treasury stock $1,528,000
÷ Number of shares ÷ 40,000
= Average price $38.20
Req. 7
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Req. 8
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT