25 Minutes, Medium
a.
Stockholders’ equity
shares authorized, issued, and outstanding 500,000$
Retained earnings at Dec. 31, 2016 170,000$
Add: Net income for 2017 and 2018 890,000
Net income for four-year period 1,060,000$
Less: Dividends paid on 8% preferred stock:
2018 (8% x $100 x 5,000 shares = $40,000) 40,000 (120,000)
Dividends on $9 preferred stock:
2018 ($9 x 5,000 shares) 45,000 (90,000)
Dividends on common stock:
b.
1.
2.
PROBLEM 11.3A
MANHATTAN TRANSPORT COMPANY
December 31, 2018
Partial Balance Sheet
MANHATTAN TRANSPORT COMPANY
A corporation might decide to use cumulative preferred stock rather than debt to finance
operations for any of the following reasons (only 2 required):
Although cumulative dividends must eventually be paid if the corporation is profitable, they
8% cumulative preferred stock, $100 par, 5,000
*Computation of retained earnings at December 31, 2018:
$9 cumulative preferred stock, no-par value, 10,000 shares
authorized, 5,000 shares issued and outstanding 512,000
shares issued and outstanding 200,000
Total paid-in capital 1,812,000$
Common stock, $2 par, 200,000 shares authorized, 100,000
for land valued at $225,000 (15,000 shares x $15).
Dividends (Preferred Stock)
Dividends Payable
To record declaration of annual dividends of $10
Payable Dec. 20.
per share on 2,500 preferred shares outstanding.
Issued 15,000 shares of common stock in exchange
Additional Paid-in Capital: Common Stock
Dividends (preferred stock)
To close the Dividends account.
Retained Earnings
10% Cumulative Preferred Stock
Income Summary
To record payment of dividend declared Nov. 15.
Dividends Payable
To close the Income Summary account for the
20__
Issued 20,000 shares of $2 par value common stock
Additional Paid-in Capital: Common Stock
at $14 per share.
PROBLEM 11.4A
a.
General Journal
SHARNES COMMUNICATIONS, INC.
Issued 2,500 shares of $100 par value, 10%,
cumulative preferred stock at par value.
Cash
7 7,000
Common Stock 1,000
Organization Costs Expense
Issued 500 shares of common stock to Barnes in
Additional Paid-in Capital: Common Stock
corporation. Implied issuance price ($7,000 ÷ 500
shares) = $14 per share.
exchange for services relating to formation of the
b.
Stockholders’ equity
50,000 shares, issued and outstanding 2,500 shares 250,000$
issued and outstanding 35,500 shares 71,000
441,000
10% cumulative preferred stock, $100 par, authorized
PROBLEM 11.4A
SHARNES COMMUNICATIONS, INC.
December 31, 20xx
Partial Balance Sheet
SHARNES COMMUNICATIONS, INC. (concluded)
Common stock, $2 par, authorized 400,000 shares,
Additional paid-in capital: Common stock
122,200
*Computation of retained earnings at December 31, 20xx:
Retained earnings*
Retained earnings at December 31, 20xx.
Retained earnings at January 1, 20xx
Add: Net income in 20xx
Less: Preferred dividends in 20xx
35 Minutes, Strong
a. Par value of all preferred stock outstanding 2,400,000$
100$
24,000
d. 900,000$
Paid-in capital in excess of par: Common 8,325,000
Total issuance price of all common stock 9,225,000$
Number of shares of common stock issued (c) 450,000
20.50$
g. Total stockholders’ equity 14,220,000$
Book value per share ($11,820,000 ÷ 450,000 shares) 26.27$
Total paid-in capital
Par value of preferred stock
Par value of common stock
Total legal capital
Total legal capital (e)
Add: Additional paid-in capital: Common stock
h. Retained earnings, beginning of the year 717,500$
Add: Net income for the year 3,970,000
Subtotal 4,687,500$
Less: Retained earnings, end of the year 2,595,000
Total dividends paid during the year 2,092,500$
Total dividends on common stock 1,912,500$
Average issuance price per share of common ($9,225,000 ÷ 450,000 shares)
Par value of all common stock issued
PROBLEM 11.5A
FT. SMITH PRODUCTS
Par value per share of preferred stock
Number of shares of preferred stock outstanding ($2,400,000 ÷ $100)
b. Dividend requirement per share of preferred stock (7 1/2% x $100) 7.50$
Par value of all common stock outstanding
Number of shares of preferred stock outstanding (a)
Par value per share of common stock
35 Minutes, Medium
In Thousands
(Except for Per
Share Amounts)
a. Par value of all common stock outstanding 6,819$
Par value per share 0.50
Number of shares outstanding ($6,819/$0.50) 13,638
PROBLEM 11.6A
PARSONS, INC. CORPORATION
b. Dividend requirement per share of preferred stock 17.20$
Numbers of shares of preferred stock outstanding 345
Annual dividends paid to preferred stockholders ($17.20 x 345) 5,934$
Additional paid-in capital 87,260
Total paid-in capital 180,329$
Less: Preferred stock par value = ($250 x 345 shares) 86,250
Number of shares of common stock outstanding 13,638
Book value per share ($151,342/13,638 shares) 11.10$
e.
f.
g.
PROBLEM 11.6A
PARSONS, INC. (concluded)
The basic advantage of being publicly owned is that the corporation has the opportunity to
raise large amounts of equity capital from many investors. Some publicly owned
The term convertible means that at the option of the preferred stockholder, each preferred
At $248 per share, Parson’s preferred has a dividend yield of 6.9% ($17.20 ÷ $248). In
15 Minutes, Easy
a.
b.
The company’s par value—one-tenth of a cent per share—is quite low. However, the
corporation can set par value at any level that it chooses; the amount of par value has
PROBLEM 11.7A
TECHNO CORPORATION
Par value is the legal capital per share—the amount by which stockholders’ equity cannot
be reduced except by losses. Thus, par value may be viewed as a minimum cushion of
equity capital existing for the protection of creditors.
15 Minutes, Medium
Stockholders’ equity:
Common stock, $1 par, 50,000 shares authorized, issued, and 50,000$
outstanding
Additional paid-in capital: Common stock 350,000
c.
The treasury stock purchase of $35,000 in 2017 was reported as a financing cash outflow
PROBLEM 11.8A
a. Feller Corporation
31-Dec-18
Partial Balance Sheet
FELLER CORPORATION
Net income in 2016 95,000$
Net income in 2017 27,500
30 Minutes, Strong
Stockholders’ equity:
10% preferred stock, $100 par, cumulative, authorized,
issued, and outstanding 30,000 shares 3,000,000$
Total stockholders’ equity at Dec. 31, 2018 6,695,000$
*Computation of additional paid-in capital on treasury stock:
Purchase price per share: $400,000 ÷ 20,000 shares = $20
per share
per share
($5 per share x 10,000 shares reissued)
Preferred dividend (for years 2014-2018)
c.
Had the company decided to split its common stock 3-for-1 on December 31, 2018, the market value
PROBLEM 11.9A
a.
HERNDON INDUSTRIES
treasury 1,200,000
Additional paid-in capital: Common stock 720,000
20 Minutes, Easy
a.
Stockholders’ equity
authorized 2,000 shares, issued and out- 50,000$
standing 500 shares
Issued and outstanding 80,000 shares 80,000
b.
c.
10% cumulative preferred stock, $100 par value,
SOLUTIONS TO PROBLEMS SET B
PROBLEM 11.1B
SEARFOSS, INC.
December 31, 2018
Partial Balance Sheet
SEARFOSS, INC.
The market price of preferred stock usually decreases as interest rates increase. At
Common stock, $1 par value, authorized 300,000 shares
There are no dividends in arrears at December 31, 2018. We know this because common
Total paid-in capital 1,250,000$
*Computation of retained earnings at December 31, 2018:
Net income for the four-year period 2015-2018
Less: Preferred dividends ($5,000 per year for four years)
20 Minutes, Easy
a.
Stockholders’ equity
authorized, issued, and outstanding 10,000 shares 1,000,000$
b.
Note to financial statements:
Common stock, $1 par value, authorized 1 million shares,
PROBLEM 11.2B
BANNER PUBLICATIONS
December 31, 2018
Partial Balance Sheet
BANNER PUBLICATIONS
10% cumulative preferred stock, $100 par value,
issued and outstanding 400,000 shares 400,000
Retained earnings, December 2017
Net income for the five-year period 2013-2017
Less: Preferred dividends ($100,000 x 5 years)
*Computation of retained earnings at December 31, 2018:
25 Minutes, Medium
a.
Stockholders’ equity
Retained earnings at Dec. 31, 2016 530,000$
Add: Net income for 2017 and 2018 1,400,000
Less: Dividends paid on 10% preferred stock:
2018 (10% x $100 x 10,000 shares = $100,000) 100,000 (300,000)
Dividends on $6 preferred stock:
2018 ($6 x 5,000 shares) 30,000 (60,000)
b.
1.
2.
A corporation might decide to use cumulative preferred stock rather than debt to finance
operations for any of the following reasons (only 2 required):
Although cumulative dividends must eventually be paid if the corporation is profitable, they
10% cumulative preferred stock, $100 par value, 10,000
*Computation of retained earnings at December 31, 2018:
PROBLEM 11.3B
RAY BEAM, INC.
December 31, 2018
Partial Balance Sheet
RAY BEAM, INC.
shares authorized, issued, and outstanding 1,000,000$
$6 cumulative preferred stock, no-par value, 8,000 shares
shares issued and outstanding 130,000
Common stock, $1 par, 260,000 shares authorized, 130,000
35 Minutes, Medium
Jan 7 Cash 300,000
18 400,000
400,000
July 5 Land 120,000
for land valued at $120,000 (10,000 shares x $12).
Additional Paid-in Capital: Common Stock
Issued 10,000 shares of common stock in exchange
Nov 25 20,000
20,000
Dec 11 20,000
Cash 20,000
Retained Earnings 810,000
31 20,000
20,000
To close the Income Summary account for the
Income Summary
To close the Dividends account.
Retained Earnings
Dividends (Preferred Stock)
20__
per share on 4,000 preferred shares outstanding.
Cash
To record payment of dividend declared Nov. 25.
Dividends Payable
5% Cumulative Preferred Stock
Payable Dec. 11.
To record declaration of annual dividends of $5
Dividends (Preferred Stock)
Dividends Payable
Issued 4,000 shares of $100 par value, 5%,
cumulative preferred stock at par value.
PROBLEM 11.4B
a.
General Journal
MARKUP, INC.
Common Stock 30,000
12 12,000
11,000
Issued 1,000 shares of common stock to Deal in
corporation. Implied issuance price ($12,000 ÷ 1,000
shares) = $12 per share.
Issued 30,000 shares of $1 par value common stock
Additional Paid-in Capital: Common Stock
Organization Costs Expense
at $10 per share.
Additional Paid-in Capital: Common Stock
exchange for services relating to formation of the