FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S10-20
(10 min.)
Solution:
Req. 1
$708,000 ($128,000 + $580,000)
Req. 2
$ 25,000
1. How much cash did the issuance of common stock bring in during 2016?
2. How much in dividends did Beckett declare during 2016?
3. What was the effect of the dividends on Beckett’s retained earnings? On total paid-
in capital? On total stockholders’ equity? On total assets?
4. What was the cost of the treasury stock that Beckett purchased during 2016?
5. What was the cost of the treasury stock that Beckett sold during the year? For how
much did Beckett sell the treasury stock during 2016?
6. How much was Beckett’s net income?
7. What is Beckett’s total stockholders’ equity as of December 31, 2016?
Chapter 10: Stockholders’ Equity Page 21 of 98
Req. 3
The dividend:
· decreased retained earnings by $25,000
· had no effect on total paid-in capital
Req. 4
Cost of treasury stock purchased = $15,000
Req. 5
Cost of treasury stock sold = $6,000
Proceeds from sale of treasury stock = $13,000 ($7,000 + $6,000)
Req. 6
Req. 7
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S10-21
(10 min.)
Solution:
Req. 1
$658,000 ($128,000 + $530,000)
1. How much cash did the issuance of common stock bring in during 2016?
2. What was the effect of the stock dividends on Hammer’s retained earnings? On
total paid- in capital? On total stockholders’ equity? On total assets?
3. What was the cost of the treasury stock that Hammer purchased during 2016?
What was the cost of the treasury stock that Hammer sold during the year? For how
much did Hammer sell the treasury stock during 2016?
4. Hammer revalued available-for-sale investments during the year, resulting in an
unrealized gain of $9,000. It also consolidated a foreign subsidiary, resulting in a
foreign currency translation gain of $3,000. How much was comprehensive income?
How much should be added to Hammer’s Accumulated Other Comprehensive
Income? Is Accumulated Other Comprehensive Income included in Hammer’s net
income?
Chapter 10: Stockholders’ Equity Page 22 of 98
Req. 2
Req. 3
Req. 4
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-22A
(10-15 min.)
Requirements
Solution:
Req. 1
ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Mar. 23 Cash 46,500
Common Stock 18,000
28,500*
1. Journalize the transactions.
2. Prepare the stockholders’ equity section of Pinkerton Stores’ balance sheet for the
transactions given in this exercise. Retained Earnings has a balance of $46,000.
Journal
Paid-in Capital in Excess of Par – Common
DATE
Chapter 10: Stockholders’ Equity Page 23 of 98
Equipment 39,000
Common Stock 18,600
40,400*
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-23A
(10 min.)
Solution:
Paid-in capital consists of:
Issued common stock for legal services 15,000$
Issued common stock for patent 78,000
Without making journal entries, determine the total paid-in capital created by these
transactions.
Chapter 10: Stockholders’ Equity Page 24 of 98
Issued preferred stock (9,000 shares × $110) 990,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-24A
(10-15 min.)
Solution:
Common stock, $0.01 par, 300 shares issued $3
Prepare the stockholders’ equity section of Wellman’s balance sheet. Net income has
already been closed to Retained Earnings.
Stockholders’ Equity (Thousands)
Chapter 10: Stockholders’ Equity Page 25 of 98
Paid-in capital in excess of par 192
Total paid-in capital 195
Retained earnings 648
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-25A
(10-15 min.)
Requirements
Solution:
Common stock, $2.50 par, 800 shares authorized,
625$
1. Prepare the stockholders’ equity section of Alistair’s balance sheet (in thousands).
2. How can Alistair have a larger balance of treasury stock than the sum of Common
Stock and Paid-in Capital in Excess of Par?
Stockholders’ Equity (Thousands)
250 shares issued and 110 shares outstanding
Chapter 10: Stockholders’ Equity Page 26 of 98
Paid-in capital in excess of par 900
Retained earnings 2,222
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-26A
(5-10 min.)
Requirements
Solution:
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Treasury Stock 28
Cash 28
Record the purchase and resale of Cinders 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 27 of 98
Cash 9
Treasury Stock 3
Paid-in Capital from Treasury Stock 6
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-27A
(10 min.)
Requirement
Solution:
Req. 1
DATE DEBIT CREDIT
b. Cash (6 million × $12.50) 75
Common Stock (6 million × $1.00)
6
Paid-in Capital in Excess of Par Value 69
1. Journalize Sidestep’s transactions in parts b, c, d, and e. Explanations are not
required.
2. What was the overall effect of these transactions (parts a–e) on Sidestep’s
stockholders’ equity?
ACCOUNT TITLES AND EXPLANATION
Millions
Journal
Chapter 10: Stockholders’ Equity Page 28 of 98
Cash 121
d. Cash 60
Treasury Stock
Paid-in Capital from Treasury Stock Transactions 5
e. Retained Earnings 36
Dividends Payable 36
Cash 36
Cash 24
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-28A
(10 min.)
Solution:
Millions
Common stock, $1.00 par value,
32 million shares issued ($26 + $6) $32
Use the Sidestep Corporation data in E10-27A to prepare the stockholders’ equity
section of the company’s balance sheet at December 31, 2017.
Stockholders’ Equity:
Chapter 10: Stockholders’ Equity Page 29 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-29A
(20-30 min.)
Requirements
Solution:
Req. 1
1. What caused Quanto’s preferred stock to decrease during 2017? Cite all possible
causes.
2. What caused Quanto’s common stock to increase during 2017? Identify all possible
causes.
3. How many shares of Quanto’s common stock were outstanding at December 31,
2017?
4. Quanto’s net income during 2017 was $1,380 million. How much were Quanto’s
dividends during the year?
5. During 2017, Quanto sold no treasury stock. What average price per share did
Quanto pay for the treasury stock that the company purchased during the year?
Possible causes for preferred stock decrease:
• Conversion of preferred stock into common stock
• Retirement of preferred stock
Chapter 10: Stockholders’ Equity Page 30 of 98
Req. 2
Req. 3
Req. 4
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 5 (All amounts in millions)
2017 2016
Cost of treasury stock 874$ – 152 = 722$
December 31,
Purchases
During 2017
Chapter 10: Stockholders’ Equity Page 31 of 98
Treasury stock, number of shares 39 – 8 = ÷ 30
Average price per share paid for
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-30A
(15 min.)
Requirement
Solution:
Preferred Common Total
2016 Total dividend
$ 120,000
Preferred dividends in arrears:
1. Compute the total amounts of dividends to both preferred and common for 2016
and 2017 if total dividends are $120,000 in 2016 and $204,000 in 2017.
2014: 65,000 shares × $4.00 (par)
Chapter 10: Stockholders’ Equity Page 32 of 98
2017: 65,000 shares × $4.00 (par)
2015: 65,000 shares × $4.00 (par)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-31A
(15-20 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
June 16 Retained Earnings (400,000 × .12 × $18) 864,000
Common Stock (400,000 × .12 × $0.40) 19,200
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 Rightwell had a cash balance of $550,000 on June 17, 2017. What is the
maximum amount of cash dividends Rightwell can declare?
Journal
Chapter 10: Stockholders’ Equity Page 33 of 98
Paid-in Capital in Excess of
Req. 2
Req. 3
Req. 4
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-32A
(15-20 min.)
Solution:
a.
b.
Identify the effects—both the direction and the dollar amount—of these assumed
transactions on the total stockholders’ equity of Ashby Corporation. Each transaction is
independent.
Decrease stockholders’ equity by $78 million.
No effect.
Chapter 10: Stockholders’ Equity Page 34 of 98
d.
e.
No effect.
No effect.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-33A
(10-15 min.)
Requirements
Solution:
Req. 1
90,000$
(25,000)
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. Eclectic Rug’s common stock recently traded at a market price of $14.75 per share.
Does this mean that Eclectic Rug’s stock is a good buy at that price?
Common:
Total stockholders’ equity
Less: Preferred equity — redemption value
Chapter 10: Stockholders’ Equity Page 35 of 98
Req. 2
90,000$
Req. 3
Common:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-34A
(10-15 min.)
Requirements
Solution:
Req. 1
Net income $ 2,379 2.97%
Net sales $ 80,000
=
=
=
Net profit
margin
ratio
1. Use DuPont Analysis to compute York’s return on assets and return on common
equity during 2016 (the current year). York 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?
Chapter 10: Stockholders’ Equity Page 36 of 98
Net sales $ 80,000 80,000$ 1.48
Net profit Asset
=
=
=
=
=
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
These rates of return suggest relative weakness. The company is generating a 2.97%
net profit margin ratio (moderate effectiveness). The company is generating an asset
Chapter 10: Stockholders’ Equity Page 37 of 98
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-35A
(10 min.)
Solution:
(17,075)$
Use the York Company data in E10-34A 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 38 of 98
Proceeds from issuance of common stock
Borrowings
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E10-36A
(20-25 min.)
Solution:
Req. 1
Balance, Dec. 31, 2015 395$ 1,630$ 4,500$ $ 7 6,532$
(Thousands)
Accum. Other
Comprehensive
Income
Retained
Earnings
Additional
Paid In
Capital
Total
Shareholders’
Equity
$1.00 Par
Common
Stock
Requirements
1. Determine the December 31, 2016, balances in Seaside Water’s shareholders’ equity
accounts and total shareholders’ equity on this date.
2. Seaside Water’s total liabilities on December 31, 2016, are $7,800. What is Seaside 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 Seaside Water issue common stock during 2016?
Chapter 10: Stockholders’ Equity Page 39 of 98
Net earnings 1,110 1,110
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
$ 7,800
=
$7,800 +
=
Debt ratio
Total liabilities
Total assets
49.5%
=
Chapter 10: Stockholders’ Equity Page 40 of 98
Req. 3
Req. 4
=
=
=