FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-37B
(10-15 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
July 23 Cash 25,500
Common Stock 3,400
22,100*
Aug. 12 Inventory 19,000
Equipment 46,000
Common Stock 6,400
58,600*
1. Journalize the transactions.
2. Prepare the stockholders’ equity section of Tropical Sporting Goods’ balance sheet
for thetransactions given in this exercise. Retained Earnings has a balance of
$45,000.
Journal
Paid-in Capital in Excess of Par – Common
Paid-in Capital in Excess of Par – Common
Chapter 10: Stockholders’ Equity Page 41 of 98
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-38B
(10 min.)
Solution:
Paid-in capital consists of:
Issued common stock for legal services
27,000$
Issued common stock for patent 83,000
Issued preferred stock (10,000 shares × $70) 700,000
Issued common stock for cash (17,000 shares × $8) 136,000
Total paid-in capital 946,000$
Chapter 10: Stockholders’ Equity Page 42 of 98
Unused data:
Net income
Dividends declared
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-39B
(10-15 min.)
Solution:
Common stock, $0.01 par, 900 shares issued $9
Paid-in capital in excess of par 207
Stockholders’ Equity (Thousands)
Chapter 10: Stockholders’ Equity Page 43 of 98
Total paid-in capital 216
Retained earnings 643
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E 10-40B
(10-15 min.)
Requirements
Solution:
Req. 1
Common stock, $2.00 par, 800 shares authorized,
800$
Paid-in capital in excess of par 899
Retained earnings 2,240
1. Prepare the stockholders’ equity section of Patterson Software’s balance sheet (in
thousands).
2. How can Patterson have a larger balance of treasury stock than the sum of Common
Stock and Paid-in Capital in Excess of Par?
Stockholders’ Equity (Thousands)
400 shares issued, 240 shares outstanding
Chapter 10: Stockholders’ Equity Page 44 of 98
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-41B
(5-10 min.)
Requirements
Solution:
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Treasury Stock 34
Cash 34
Record the purchase and resale of Raintree Marketing’s treasury stock. Overall, how
much did stockholders’ equity increase or decrease as a result of the two treasury-
stock transactions?
Journal
Millions
Chapter 10: Stockholders’ Equity Page 45 of 98
Cash 15
Treasury Stock 6
Paid-in Capital from Treasury Stock 9
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E 10-42B
(10 min.)
Requirements
Solution:
Req. 1
DATE DEBIT CREDIT
b. Cash (10 million × $14.00) 140
Common Stock (10 million × $3.00) 30
Paid-in Capital in Excess of Par Value 110
c. Treasury Stock 65
Cash 65
1. Journalize Pioneer’s transactions in parts b, c, d, and e. Explanations are not
required.
2. What was the overall effect of these transactions (parts a through e) on Pioneer
Corporation’s stockholders’ equity?
ACCOUNT TITLES AND EXPLANATION
Journal
Millions
Chapter 10: Stockholders’ Equity Page 46 of 98
d. Cash 56
Paid-in Capital from Treasury Stock Transactions 4
e. Retained Earnings 33
Dividends Payable 33
Cash 33
Cash 33
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-43B
(10 min.)
Solution:
Common stock, $3.00 par value, 32 million shares
issued ($66 + $30) 96$
Use the Pioneer Corporation data in E10-42B to prepare the stockholders’ equity
section of the company’s balance sheet at December 31, 2017.
Stockholders’ Equity:
Dollars in
Millions
Chapter 10: Stockholders’ Equity Page 47 of 98
Paid in capital in excess of par value ($33 + $110) 143
Paid-in capital from treasury stock transactions 4
Total paid-in capital 243
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-44B
(20-30 min.)
Requirements
Solution:
Req. 1
1. What caused Crogan’s preferred stock to decrease during 2017? Cite all possible
causes.
2. What caused Crogan’s common stock to increase during 2017? Identify all possible
causes. 3. How
many shares of Crogan’s common stock were outstanding at December 31, 2017?
4. Crogan’s net income during 2017 was $1,430 million. How much were Crogan’s
dividends during the year?
5. During 2017, Crogan sold no treasury stock. What average price per share did
Crogan pay for the treasury stock that the company purchased during the year?
Possible causes for preferred stock decrease:
• Conversion of preferred stock into common stock
• Retirement of preferred stock
Chapter 10: Stockholders’ Equity Page 48 of 98
Req. 2
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 4
Bal. 5,075
205 1,430
Bal. 6,300
Retained Earnings (Millions)
Dec. 31, 2016
Dividends
Net income
Dec. 31, 2017
Chapter 10: Stockholders’ Equity Page 49 of 98
Req. 5 (All amounts in millions)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-45B
(15 min.)
Requirement
Solution:
Preferred Common
Total
2016 Total dividend $ 90,000
Preferred dividends in arrears:
$5,500
1. Compute the total amounts of dividends to both preferred and common for 2016
and 2017 if total dividends are $90,000 in 2016 and $225,000 in 2017.
2014: 55,000 shares × $2.50 (par)
per share × .04 =
Chapter 10: Stockholders’ Equity Page 50 of 98
2017 Total dividend 225,000$
2017: 55,000 shares × $2.50 (par)
per share × .04 =
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-46B
(15-20 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Aug. 13 Retained Earnings (700,000 × .25 × $20) 3,500,000
Common Stock (700,000 × .25 × $0.60) 105,000
Paid-in Capital in Excess of Par – Common 3,395,000
1. Journalize the declaration and distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet after the stock dividend.
3. Why is total stockholders’ equity unchanged by the stock dividend?
4. Suppose Little Wonders had a cash balance of $530,000 on August 14, 2017. What is the
maximum amount of cash dividends Little Wonders can declare?
Journal
To declare and distribute a common stock dividend.
Chapter 10: Stockholders’ Equity Page 51 of 98
Common stock, $0.60 par, 2,100,000 shares authorized,
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-47B
(15-20 min.)
Solution:
a.
b.
c.
Identify the effects—both the direction and the dollar amount—of these assumed
transactions on the total stockholders’ equity of Newberry Corporation. Each
transaction is independent.
Decrease stockholders’ equity by $82 million.
No effect.
No effect.
Chapter 10: Stockholders’ Equity Page 52 of 98
d.
e.
No effect.
No effect.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-48B
(10-15 min.)
Requirements
Solution:
Req. 1
78,000$
(25,000)
53,000$
13.25$
1. Compute the book value per share for the common stock, assuming all preferred
dividends are fully paid up including the current year (none in arrears.)
2. Compute the book value per share of the common stock, assuming that three years’
cumulative preferred dividends, including the current year, are in arrears.
3. Walton Wallcoverings’ common stock recently traded at a market price of $10.75 per
share. Does this mean that Walton Wallcoverings’ stock is a good buy at that price?
Common:
Total stockholders’ equity
Less: Preferred equity — redemption value
Total common equity
Book value per share ($53,000 / 4,000 shares)
Chapter 10: Stockholders’ Equity Page 53 of 98
Req. 2
78,000$
Req. 3
Common:
Book value per share ($49,760 / 4,000 shares)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-49B
(10-15 min.)
Requirements
Solution:
Req. 1
Net income $ 6,488
Net sales $ 60,000
=
=
=
10.8%
1. Use DuPont Analysis to compute Easton’s return on assets and return on common
equity during 2016 (the current year). Easton has no preferred stock outstanding.
2. Do the company’s rates of return look strong or weak? Give your reason.
3. What additional information do you need to make the decision in requirement 2?
Net profit
margin
ratio
Chapter 10: Stockholders’ Equity Page 54 of 98
Net sales $ 60,000 $ 60,000 1.11
Net profit Asset
=
=
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
These rates of return suggest relative strength. The company is generating a 10.8% net
profit margin ratio. The company is generating an asset turnover of 1.11 meaning $1.11
in sales for each dollar of assets invested (relative efficiency). Finally, the company has
Chapter 10: Stockholders’ Equity Page 55 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E 10-50B
(10-15 min.)
Requirement
Solution:
(17,055)$
Use the Easton data in E10-49B to show how the company reported cash flows from
financing activities during 2016 (the current year).
Cash flows from financing activities:
Payment of long-term debt
Chapter 10: Stockholders’ Equity Page 56 of 98
Proceeds from issuance of common stock
Borrowings
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-51B
(20-25 min.)
Requirements
Solution:
Req.1
Balance, Dec. 31, 2015 370$ 1,730$ 4,500$ 9$ 6,609$
1. Determine the December 31, 2016, balances in Rickett Water’s shareholders’ equity accounts
and total shareholders’ equity on this date.
2. Rickett Water’s total liabilities on December 31, 2016, are $7,000. What is Rickett Water’s debt
ratio on this date?
3. Was there a profit or a loss for the year ended December 31, 2016? How can you tell?
4. At what price per share did Rickett Water issue common stock during 2016?
(Thousands)
Accum. Other
Compre-
hensive
Income
$2.00 Par
Common
Stock
Additional
Paid In
Capital
Total
Shareholders’
Equity
Retained
Earnings
Chapter 10: Stockholders’ Equity Page 57 of 98
Net earnings 1,310 1,310
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Debt ratio 7,000$
Total liabilities
Total assets
=
=
=
$7,000 +
$8,225
46.0%
Chapter 10: Stockholders’ Equity Page 58 of 98
Req. 3
Req. 4
=
=
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Quiz
Q10-52 a
Q10-53 c
Q10-54 b
Chapter 10: Stockholders’ Equity Page 59 of 98
Q10-55 c
Q10-56 c
Q10-57 e
Q10-58 d
Q10-59 a
Q10-60 d
Q10-61 a
Q10-63 d
Q10-65 b
Q10-66 b
Q10-67 b
Q10-68 d
Q10-69 a
Q10-71 a
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P10-72A
(30-45 min.)
Requirements
Solution:
Req. 1
ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Mar. 6 Organization Expense 27,000
Common Stock (1,000 × $6) 6,000
Paid-in Capital in Excess of Par – Common 21,000
1. Record the transactions in the journal.
2. Prepare the stockholders’ equity section of the Lane Rafts, Inc., balance sheet at
March 31, 2017. The ending balance of Retained Earnings is $90,000.
Journal
DATE
Chapter 10: Stockholders’ Equity Page 60 of 98
Issued stock to promoter for assisting with
Common Stock (30,000 × $6) 180,000
Paid-in Capital in Excess of Par – Common 120,000
Issued common stock for cash.
Common Stock (1,500 × $6) 9,000
Paid-in Capital in Excess of Par – Common 24,000
Issued common stock for cash.
Req. 2
Common stock, $6 par, 160,000 shares authorized,
32,500* shares issued and outstanding 195,000$