Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Chapter 11
Corporate Reporting and Analysis
QUESTIONS
1. Organization expenses (costs) are incurred in creating a corporation. Examples include:
2. Organization expenses (costs) are reported as expenses when incurred—as part of
3. The board of directors of a corporation is responsible for overseeing the corporation’s
activities. The directors are elected by the corporation’s stockholders.
4. Authorized shares represent the maximum number of shares that a corporation’s charter
5. The preemptive right of common stockholders is the right to maintain their relative
ownership interests in the corporation by having the first opportunity to purchase their
proportionate share of any additional common shares issued by the corporation.
6. The general rights of common stockholders include: (1) the right to vote in
stockholders’ meetings, (2) the right to sell or otherwise dispose of stock, (3) the
7. The market value per share of stock is the price at which a share of stock is bought or
8. The three important dates governing dividends are:
a. date of declaration⎯the date the directors vote to pay a dividend.
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9. Cash dividends debited against paid-in capital accounts are called liquidating dividends
10. Declaring a stock dividend has no effect on assets, liabilities, or total equity. Also, the
11. A stock dividend results in a distribution of additional shares to stockholders and the
capitalization of retained earnings. A stock split calls in the old shares and replaces
12. A treasury stock purchase reduces total assets and total equity by equal amounts.
13. With a simple capital structure, earnings per share is calculated by first subtracting any
14. When a corporation has no preferred stock, book value per share is calculated by
15. Apple discloses on its balance sheet that it has 12,600,000 common shares authorized; it
also reports that it has 5,126,201 of common shares issued and outstanding (number of
shares in thousands).
16. The par value for Google’s preferred stock is reported to be $0.001. A low par value can
17. From a review of its statement of cash flows, Samsung reported a cash outlay of
₩8,350,424 million to repurchase treasury stock.
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QUICK STUDIES
Quick Study 11-1 (10 minutes)
True statements: 3, 4, 5 and 7
Quick Study 11-2 (5 minutes)
a.
Cash ………………………………………………………………..
375,000
Common Stock, $5 Par Value ……………………….
b.
Cash* ……………………………………………………………….
450,000
Common Stock, $5 Par Value ……………………….
Common Stock …………………………………………
75,000
Quick Study 11-3 (5 minutes)
a.
Cash* ……………………………………………………………….
648,000
Common Stock, $2 Par Value** …………………….
72,000
Common Stock*** ……………………………………..
***$648,000 – $72,000 = $576,000
b.
Cash* ……………………………………………………………….
648,000
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Quick Study 11-4 (5 minutes)
a.
Cash …………………………………………………………………………
1,827,000
Common Stock, No-Par Value …………………………..
1,827,000
1,827,000
Common Stock, No-Par Value …………………………..
1,827,000
Quick Study 11-5 (15 minutes)
(a) Mar. 1
Cash ………………………………………………………………..
297,500
Common Stock, $4 Par Value ……………………….
170,000
Paid-In Capital in Excess of Par Value,
Common Stock …………………………………………
127,500
(b) Apr. 1
Common Stock, No-Par Value ………………………
(c) Apr. 6
Machinery ……………………………………………………….
145,000
Note Payable ……………………………………………….
Common Stock, $25 Par Value ……………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Quick Study 11-6 (10 minutes)
Retained Earnings …………………………………………………
165,000
Common Dividend Payable …………………………..
165,000
Common Dividend Payable …………………………..
165,000
Cash ……………………………………………………….
165,000
Quick Study 11-7 (15 minutes)
a.
July 1
Retained Earnings ……………………………………………
4,000
Common Stock Dividend Distributable* ……….
1,000
Common Stock** ……………………………………..
3,000
July 20
Common Stock Dividend Distributable ……………..
Common Stock, $2 Par Value ………………………
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Quick Study 11-8 (10 minutes)
Jun Co.
Stockholders’ Equity
April 2 (after stock dividend)
Common stock⎯$5 par value, 375,000 shares
authorized, 220,000 shares issued and outstanding …………….
$1,100,000
Supporting work
Apr. 2
Retained Earnings …………………………………………………
400,000
Common Stock** ……………………………………………
Quick Study 11-9 (10 minutes)
Mar. 2
Retained Earnings ……………………………………………
120,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Quick Study 11–10 (10 minutes)
Quick Study 11–11 (5 minutes)
1.
Cash* ………………………………………………………………………..
510,000
Preferred Stock, $100 Par Value** ………………………….
500,000
Preferred Stock*** ………………………………………………
Quick Study 11-12 (10 minutes)
Total cash dividend …………………………………………………………………
$110,000
To preferred shareholders ……………………………………………………….
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Quick Study 11–13 (30 minutes)
Noncumulative
Preferred
Common
Year 1 ($800 paid)
Preferred* ………………………………………………
$ 800
Common⎯remainder ……………………………..
$ 0
$ 0
Year 2 ($1,700 paid)
Preferred* ………………………………………………
Common⎯remainder ……………………………..
$ 700
Quick Study 11–14 (20 minutes)
Cumulative
Preferred
Common
Year 1 ($800 paid)
Preferred* ………………………………………………
$ 800
Common⎯remainder ……………………………..
$ 0
$ 800
$ 0
Year 2 ($1,700 paid)
Preferred⎯arrears from Year 1 ……………….
$ 200
Preferred* ………………………………………………
Common⎯remainder ……………………………..
$ 500
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Quick Study 11-15 (10 minutes)
May 3
Treasury Stock (4,000 shares) …………………………..
36,000
Cash ………………………………………………………………..
36,000
Paid-In Capital, Treasury Stock …………………………
Reissued treasury stock at a price
Purchased treasury stock
Quick Study 11-16 (10 minutes)
1. NE No Effect
Quick Study 11-17 (15 minutes)
WESTWORLD INC.
Stockholders’ Equity Section of Balance Sheet
December 31
Preferred stock ……………………………………………………………………
$ 7,000
Paid-in capital in excess of par value, preferred stock……………
3,000
Common stock …………………………………………………………………….
Paid-in capital in excess of par value, common stock ……………
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Quick Study 11-18 (10 minutes)
1. Prior period adjustment
This material error should be reported on the statement of retained
2. Change in accounting estimate
3. Prior period adjustment
Quick Study 11-19 (10 minutes)
Beginning retained earnings …………………………………………………
$ 20,000
Cash dividends …………………………………………………………………….
Quick Study 11–20 (10 minutes)
Basic earnings per share: =
Quick Study 11–21 (10 minutes)
Net income – Preferred dividends
Weighted-average common shares outstanding
Net income – Preferred dividends
Weighted-average common shares outstanding
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Quick Study 11–22 (10 minutes)
Analysis: Competitor. The stock with a PE of 5.2 is lower than its
Quick Study 11–23 (10 minutes)
Analysis: Income stock. The company’s dividend yield of 7.2% indicates
Quick Study 11–24 (10 minutes)
Total stockholders’ equity ……………………………………………………….
$1,850,000
Less equity attributable to preferred shares ………………………………
200,000
$1,650,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
EXERCISES
Exercise 11-1 (15 minutes)
Characteristic
Corporations
1.
Owner authority and control ………………….
e. One vote per share
2.
a. Requires government approval
3.
Transferability of ownership ………………….
4.
5.
7.
c. Separate legal entity
Exercise 11-2 (15 minutes)
Violations: 1, 3, and 4
Exercise 11-3 (15 minutes)
1.
Feb. 20
Cash ………………………………………………………………..
152,000
Common Stock, $2 Par Value* …………………….
38,000
Common Stock** ……………………………………..
114,000
2.
Feb. 20
Cash ………………………………………………………………..
152,000
Common Stock, No-Par Value ……………………..
152,000
Issued common stock for cash.
3.
Feb. 20
Cash ………………………………………………………………..
152,000
Common Stock, $5 Stated Value* ………………..
95,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11-4 (15 minutes)
1.
Cash ……………………………………………………………………….
35,000
Common Stock, $5 Par Value* …………………………….
20,000
**$35,000 – $20,000 = $15,000
2.
Organization Expenses ……………………………………………
40,000
Common Stock, $1 Stated Value …………………………
2,000
Issued stock to promoters.
3.
Organization Expenses ……………………………………………
40,000
Common Stock, No-Par Value …………………………….
40,000
Issued stock to promoters.
4.
Cash ………………………………………………………………………..
60,000
Preferred Stock, $50 Par Value* …………………………..
50,000
Preferred Stock**………………………………………………
10,000
**$60,000 – $50,000 = $10,000
Exercise 11-5 (15 minutes)
Land ……………………………………………………………………….
45,000
Building ………………………………………………………………….
85,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11-6 (20 minutes)
1.
SHARPER CORPORATION
Stockholders’ Equity Section of the Balance Sheet
June 30
Common stock⎯$10 par value, 75,000 shares issued and
outstanding ………………………………………………………………………
$ 750,000
2. Number of outstanding shares
Outstanding shares before the dividend ………………………..
50,000
25,000
Exercise 11-7 (15 minutes)
1.
SHARPER CORPORATION
Stockholders’ Equity Section of the Balance Sheet
June 30
Common stock⎯$3.33 (rounded) par value, 150,000 shares
issued and outstanding ……………………………………………………….
$ 500,000
2. Number of outstanding shares
Outstanding shares before the split…………………………..
50,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11-8 (25 minutes)
1.
Retained Earnings* ………………………………………………..
480,000
Common Stock Dividend Distributable** …………..
120,000
Common Stock Dividend Distributable …………………..
120,000
Common Stock, $10 Par Value ………………………….
120,000
Paid-In Capital in Excess of Par Value,
2.
TVX COMPANY
Stockholders’ Equity Section of the Balance Sheet
February 28
Common stock⎯$10 par value, 150,000 shares authorized,
72,000 shares issued and outstanding ……………………………………….
$ 720,000
Exercise 11-9 (10 minutes)
A
D
C
B
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Exercise 11–10 (30 minutes)
Non-Cumulative
Preferred
Common
Year 1 ($20,000 paid)
Preferred* ………………………………………………
$ 20,000
Common⎯remainder ……………………………..
_______
Totals for the year ………………………………….
$ 20,000
Year 2 ($28,000 paid)
Preferred* ………………………………………………
Common⎯remainder ……………………………..
_______
Totals for the year ………………………………….
$ 28,000
Year 3 ($200,000 paid)
Preferred* ………………………………………………
$ 30,000
Common⎯remainder ……………………………..
_______
$170,000
Totals for the year ………………………………….
$ 30,000
$170,000
Year 4 ($350,000 paid)
Preferred* ………………………………………………
$ 30,000
Common⎯remainder ……………………………..
_______
$320,000
Totals for the year ………………………………….
$ 30,000
$320,000
_______
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11–11 (25 minutes)
Cumulative
Preferred
Common
Year 1 ($20,000 paid)
Preferred* ………………………………………………
$ 20,000
Common⎯remainder ……………………………..
_______
$ 0
Totals for the year ………………………………….
$ 20,000
$ 0
Preferred⎯arrears from Year 1 ……………….
$ 10,000
Preferred* ………………………………………………
18,000
Common⎯remainder ……………………………..
_______
$ 0
Totals for the year ………………………………….
$ 28,000
$ 0
(Note: $10,000 in preferred stock dividends in arrears.)
Year 3 ($200,000 paid)
Preferred⎯arrears from Year 2 ……………….
$ 12,000
Preferred* ………………………………………………
30,000
Common⎯remainder ……………………………..
_______
$158,000
Totals for the year ………………………………….
$ 42,000
$158,000
(Note: $0 in preferred stock dividends in arrears.)
Year 4 ($350,000 paid)
Preferred* ………………………………………………
$ 30,000
Common⎯remainder ……………………………..
_______
$320,000
Totals for the year ………………………………….
$ 30,000
$320,000
_______
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Exercise 11-12 (25 minutes)
1. (a)
Treasury Stock (5,000 x $25) …………………………..
125,000
Cash ………………………………………………………………..
125,000
Purchased treasury stock.
Treasury Stock (1,000 x $25) …………………………..
Paid-In Capital, Treasury Stock …………………………
Retained Earnings …………………………………………………
Treasury Stock (4,000 x $25) …………………………..
100,000
2. Revised equity section appears as follows
Common stock⎯$10 par value; 72,000 shares authorized
and issued; 5,000 shares in treasury ……………………………………
$ 720,000
Paid-in capital in excess of par value, Common stock ……………..
216,000
Retained earnings, $125,000 restricted by treasury stock ………..
864,000
Less cost of treasury stock …………………………………………………….
(125,000)
Total stockholders’ equity ………………………………………………………
$1,675,000
Explanation of Changes:
(i) The common stock account description line will change. After the treasury stock
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11-13 (20 minutes)
DRACO CORPORATION
Stockholders’ Equity Section of the Balance Sheet
December 31
Preferred stock⎯$10 par value; 3,000 shares authorized;
1,000 shares issued and outstanding…………………………………..
$ 10,000
Paid-in capital in excess of par value, preferred stock …………….
13,000
64,000
Exercise 11-14 (10 minutes)
Retained earnings, Dec. 31, 2018, as previously reported ………
$ 60,000
Prior period adjustment ………………………………………………………..
12,000
Retained earnings, Dec. 31, 2018, as adjusted ……………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 11
Exercise 11-15 (15 minutes)
Amos Company
Statement of Retained Earnings
For Year Ended December 31, 2019
Retained earnings, Dec. 31, 2018, as previously reported ………
$1,375,000
Prior period adjustment
Retained earnings, Dec. 31, 2018, as adjusted ……………………….
Plus net income ……………………………………………………………………
Less dividends …………………………………………………………………….
Exercise 11-16 (25 minutes)
1. Net income ………………………………………………………………………….
$2,700,000
2. Net income available to common stockholders …………………..
$2,311,980