(15-20 min.) E 10-46B
Req. 1
Journal
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) …
Paid-in Capital in Excess of Par –
Req. 2
Stockholders’ equity:
Common stock, $0.60 par, 2,100,000 shares authorized,
875,000 issued and outstanding ($420,000 + $105,000) ..
$ 525,000
Paid-in capital in excess of par − common
($1,506,773 + $3,395,000) ………………………………………
Accumulated other comprehensive income (loss) ………
Req. 3
The stock dividend did not change total stockholders’ equity because
the company gave its stockholders no assets. The company merely
Req. 4
Little Wonders’ maximum cash dividend is limited to $530,000, the
balance of its cash account.
(15-20 min.) E 10-47B
a. Decrease stockholders’ equity by $82 million.
b. No effect.
(10-15 min.) E 10-48B
Req. 1
Common:
Total stockholders’ equity ……………………………………….
$ 78,000
Total common equity ………………………………………………
Book value per share ($53,000 / 4,000 shares) ………….
Req. 2
Common:
Total stockholders’ equity ………………………………………
$ 78,000
Less: Preferred equity [$25,000 + ($18,000 × .06 × 3)]…
(28,240)
Total common equity ………………………………………………
$ 49,760
Book value per share ($49,760 / 4,000 shares) …………..
$12.44
Req. 3
(10-15 min.) E 10–49B
Req. 1
Net
profit
=
Net income
=
=
10.8%
margin
Net sales
ratio
Asset
=
Net sales
=
=
$60,000
=
1.11
turnover
Average total
$53,929
assets
Leverage
=
Avg. total assets
=
=
2.87
ratio
Avg. common
stkholders’
equity
ROA
=
ROE
=
34.41%
(continued) E 10-49B
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
Req. 3
Comparative data from prior years as well as industry competitors’ ROA
and ROE measures would also be helpful when making this decision.
(10 min.) E 10-50B
Cash flows from financing activities:
(20-25 min.) E 10-51B
Req. 1
(Thousands)
$2.00 Par
Common
Stock
Additional
Paid In
Capital
Retained
Earnings
Accum. Other
Comprehensive
Income
Total
Shareholders’
Equity
Balance, Dec. 31, 2015 ..
$370
$1,730
$4,500
$9
$6,609
Net earnings ……………….
1,310
1,310
Other comprehensive
1
Issuance of stock ……….
Cash dividends …………..
Balance, Dec. 31, 2016 ..
$530
$1,960
$5,725
$10
$8,225
Req. 2
Debt ratio
=
Total liabilities
=
$7,000
=
46.0%
Total assets
$7,000 + $8,225
Req. 3
The year was profitable, as indicated by net earnings.
Req. 4
Quiz
Q10–52
a
Q10–53
c
Q10–54
b
Q10–55
c
Q10–56
c
e
Q10-58
d ($318,000 + $270,000 + $89,000 = $677,000)
Q10-59
Q10–60
16.5%}
Q10–61
a
Q10–62
c
Q10–63
d
Q10–64
c
Q10–65
b
Q10–66
b (50,000 × $100 × .12 = $600,000)
Q10-67
Q10-68
d
Q10-69
a
Q10–70
c
Q10–71
a ($25,000 / $120,000 = 20.8%)
Problems
(30-45 min.) P 10–72A
Req. 1
Journal
DATE
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
Issued stock to promoter for assisting
with issuance of stock.
9
Cash (30,000 × $10 per share) ………………….
Common Stock (30,000 × $6) ………………
Paid-in Capital in Excess of
Issued common stock for cash.
26
Cash (1,500 × $22) …………………………………..
Common Stock (1,500 × $6) ………………..
9,000
Paid-in Capital in Excess of
Par – Common ……………………………….
24,000
Issued common stock for cash.
(continued) P 10-72A
Req. 2
Lane Rafts, Inc.
Balance Sheet (partial)
March 31, 2017
Stockholders’ equity:
Common stock, $6 par, 160,000 shares authorized,
32,500* shares issued and outstanding ………………..
$195,000
Paid-in capital in excess of par – common** ……………….
165,000
Retained earnings ……………………………………………………..
Rollo Corp.
Balance Sheet (partial)
December 31, 2016
Stockholders’ equity:
Preferred stock, 7%, $110 par, 5,000 shares authorized,
2,500 shares issued and outstanding …………………………..
$275,000
Common stock, no-par, 650,000 shares authorized,
65,000 shares issued and outstanding …………………………
511,000
Retained earnings …………………………………………………………..
$882,500
(25-35 min.) P 10-74A
Req. 1
Yoder Outdoor Furniture Company has Class A cumulative preferred
stock, Class B cumulative preferred stock, and common stock
outstanding.
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash …………………………..……………….
2,520,000
Class A Preferred Stock …………….
2,520,000
Cash …………………………..……………….
Class B Preferred Stock …………….
Cash ($1,860,000 + $5,570,000) ………
Common Stock …………………………
Common ………………………………
Req. 3
Yoder Outdoor Furniture would have to pay all preferred dividends in
arrears and pay the current year’s dividends before paying dividends to
common stockholders because the preferred stock is cumulative.
(continued) P 10-74A
Req. 4
Yoder must pay preferred dividends of $338,100* each year to avoid
having preferred dividends in arrears.
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2017
Feb.
28
Retained Earnings …………………………………..
820,000
Dividends Payable, Class A
Preferred ($151,200 × 2) …………………..
302,400
Dividends Payable, Class B
Preferred ($186,900 × 2) ………………….
373,800
Dividends Payable, Common ……………….
(15-20 min.) P 10-75A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Feb.
13
Cash (5,700 × $10) ……………………………………
57,000
Common Stock (5,700 × $7) …………………
39,900
Paid-in Capital in Excess of Par −
Common ………………………………………..
17,100
June
Retained Earnings ……………………………………
Dividends Payable (200 × $0.40) …………..
24
Dividends Payable ……………………………………
Cash …………………………………………………..
Aug.
Retained Earnings (12,000 × 0.10 × $14) …….
16,800
Common Stock (12,000 × 0.10 × $7) ……..
Paid-in Capital in Excess of Par −
Common ………………………………………..
Oct.
26
Treasury Stock (900 × $16) ……………………….
14,400
Cash …………………………………………………..
14,400
Nov.
20
Cash (300 × $21) ………………………………………
6,300
Treasury Stock (300 × $16) …………………..
4,800
Paid-in Capital from Treasury
Stock Transactions …………………………
1,500
Dec.
31
Retained Earnings [(13,200* – 600) × $0.25] ….
Dividends Payable ………………………………
(continued) P 10-75A
Req. 2
Stockholders’ equity:
$.40 cumulative preferred stock, $15 par, 200 shares
issued and outstanding ……………………………………………………
$ 3,000
Common stock, $7 par, 13,200 shares issued ($44,100 +
$39,900 + $8,400) and 12,600 shares outstanding ………………
92,400
Paid-in capital in excess of par − common
43,100
Less: Treasury stock, 600 shares at cost
(20-30 min.) P 10-76A
Req. 1 and 2
ASSETS
=
LIABILITIES
+
STOCKHOLDERS’
EQUITY
CASH FLOW
Feb. 3
$510,000
=
$ 0
+
$510,000
$+510,000
Mar. 19
(58,800)
=
0
+
(58,800)
-58,800
Apr. 24
55,100
=
0
+
55,100
+55,100
Sept. 1
=
+
Nov. 22
=
0
+
(40-50 min.) P 10-77A
Req. 1
Seagull Designers, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Current:
Current:
Cash ………………………
$ 42,000
Accounts payable ……………
$145,000
Accounts rec.,
Accrued liabilities …………..
25,000
net ………………………
20,000
Dividends payable …………..
11,000
Inventory ………………..
89,000
Total current liabilities ……….
Prepaid
expenses …………….
Long-term note payable ………
98,000
Total current assets ….
Total liabilities ……………………
279,000
Property, plant,
STOCKHOLDERS’
and equipment,
EQUITY
net …………………………
354,000
Common stock,
Intangible assets:
$1 par, 1,250,000 shares
Goodwill …………………
16,000
authorized, 118,000
Trademarks, net ……..
11,000
shares issued, 95,000
shares outstanding ………….
$118,000
Paid-in capital in excess of
par – common …………………
22,000
Retained earnings ………………
Less: Treasury stock,
common, 23,000 shares
at cost …………………………....
275,000
Total liabilities and
Total assets
$554,000
$554,000
_____
*Retained earnings = Total assets − Total liabilities − Total paid-in capital +
Treasury stock = $554,000 − $279,000 − $118,000 − $22,000 + $32,000 =
$167,000
(continued) P 10-77A
Req. 2
Net profit
=
Net income
=
=
9.47%
margin
Net sales
ratio
Asset
=
Net sales
=
=
$950,000
=
1.813
turnover
Average total
$524,000
assets
(continued) P 10-77A
Req. 3
These rates of return suggest strength. The company is generating a
9.47% (9.5%) net profit margin ratio indicating great effectiveness in
achieving profit goals and most likely some product differentiation. The
company is generating an asset turnover of 1.813, meaning $1.81 in
sales for each dollar of assets invested, indicating excellent efficiency.
(15-20 min.) P 10-78A
Req. 1
Par value of common stock:
$100 million par value
=
$1.00 per
share
100 million shares
issued
Req. 2
Req. 3
Cost of treasury stock sold: $ 5 million
Selling price of treasury stock sold: $ 22 million
Increase in total stockholders’ equity: $ 22 million
Req. 4
(30-45 min.) P 10–79B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Jan.
6
Organization Expense ……………………………….
1,800
Common Stock (100 × $15) ……………………
1,500
Paid-in Capital in Excess of
Par – Common ………………………………….
300
Issued stock to promoter for assistance in
Issuing common stock.
9
Cash (26,000 × $22) …………………………………..
Common Stock (26,000 × $15) ……………….
Paid-in Capital in Excess of
Par – Common ………………………………….
Issued common stock for cash.
26
Cash (1,400 × $22) …………………………………….
Common Stock (1,400 × $15) …………………
Paid-in Capital in Excess of
Par – Common ………………………………….
9,800
Issued common stock for cash.
Req. 2
Canal Kayaks, Inc.
Balance Sheet (partial)
January 31, 2017
Stockholders’ equity:
Common stock, $15 par, 125,000 shares
authorized, 27,500* shares issued and outstanding …..
$412,500
Paid-in capital in excess of par – common ……………………
192,100**
Retained earnings ……………………………………………………….