1. No. Common stock with a higher par is not necessarily a better investment than common
2. The broker is not correct. Corporations are not legally liable to pay dividends until the
3. The company may not have had enough cash on hand to pay a dividend on the common
CHAPTER 11
CORPORATIONS: ORGANIZATION, STOCK
DISCUSSION QUESTIONS
TRANSACTIONS, AND DIVIDENDS
11-1
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
PE 11–1A
Amount distributed……………………………… $30,000 $90,000 $125,000
PE 11–1B
Amount distributed……………………………… $21,600 $4,000 $100,800
PE 11–2A
May 10 Cash (90,000 shares × $42)
Common Stock (90,000 shares × $30)
Year 1 Year 2 Year 3
PRACTICE EXERCISES
Year 1 Year 2 Year 3
2,700,000
3,780,000
11-2
PE 11–2B
Jan. 22 Cash 720,000
Common Stock (180,000 shares × $4) 720,000
PE 11–3A
Aug. 1 Cash Dividends 1,250,000
PE 11–3B
Feb. 1 Cash Dividends 480,000
11-3
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
PE 11–4A
Feb. 15 Stock Dividends (250,000 shares × 2% × $52) 260,000
PE 11–4B
June 8 Stock Dividends (820,000 shares × 5% × $63) 2,583,000
Stock Dividends Distributable (41,000 shares
PE 11–5A
Jan. 31 Treasury Stock (22,500 shares × $31) 697,500
Cash 697,500
11-4
PE 11–5B
May 27 Treasury Stock (75,000 shares × $8) 600,000
Cash 600,000
PE 11–6A
Paid-in capital:
Common stock, $60 par (250,000 shares
authorized, 200,000 shares issued) $12,000,000
PE 11–6B
Paid-in capital:
Common stock, $120 par (500,000 shares
authorized, 400,000 shares issued) $48,000,000
Stockholders’ Equity
Stockholders’ Equity
11-5
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
PE 11–7A
Retained earnings, July 1, 2013 $3,900,000
PE 11–7B
Retained earnings, November 1, 2013 $12,400,000
ROCKWELL INC.
Retained Earnings Statement
For the Year Ended June 30, 2014
NORIC CRUISES INC.
Retained Earnings Statement
For the Year Ended October 31, 2014
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
PE 11–8A
PE 11–8B
a. 2014: Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
2014: Earnings per Sharea. Avg. Number of Common Shares Outstanding
Net Income – Preferred Dividends
=
11-7
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–1
a. Total dividend declared……………
…
$24,000 $81,000 $92,000 $139,000
Ex. 11–2
a. Total dividend declared……………
…
$36,000 $58,000 $75,000 $124,000
EXERCISES
2nd Year 3rd Year 4th Year1st Year
1st Year 2nd Year 3rd Year 4th Year
11-8
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–3
a. Feb. 25 Cash (120,000 shares × $40) 4,800,000
Common Stock (120,000 shares × $36) 4,320,000
Ex. 11–4
a. Aug. 5 Cash (500,000 shares × $3) 1,500,000
Common Stock (500,000 shares × $1) 500,000
Ex. 11–5
May 10 Land (3,600 shares × $28) 100,800
11-9
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–6
a. Cash 900,000
Common Stock (45,000 shares × $20) 900,000
Ex. 11–7
Oct. 1 Cash (120,000 shares × $31.50) 3,780,000
Common Stock (120,000 shares × $30.00) 3,600,000
11-10
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–8
1 Cash 4,500,000
Common Stock (180,000 shares × $25) 4,500,000
Feb.
11-11
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–9
10 Cash Dividends 187,500
Ex. 11–10
a. (1) Stock Dividends [(300,000 shares × 5%) × $40] 600,000
July
11-12
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–11
a. 4 Treasury Stock (33,000 shares × $84) 2,772,000
Cash 2,772,000
Ex. 11–12
a. 17 Treasury Stock (50,000 shares × $12) 600,000
Cash 600,000
Mar.
Feb.
11-13
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–13
a. 14 Treasury Stock (23,500 shares × $75) 1,762,500
Cash 1,762,500
May
11-14
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–14
Paid-in capital:
Preferred 2% stock, $120 par
(85,000 shares authorized,
Ex. 11–15
Paid-in capital:
Common stock, $45 par
Stockholders’ Equity
Stockholders’ Equity
11-15
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–16
Paid-in capital:
Preferred 1% stock, $150 par
(50,000 shares authorized,
Ex. 11–17
Retained earnings, February 1, 2013 $48,110,000
Stockholders’ Equity
ATLAS PUMPS CORPORATION
Retained Earnings Statement
For the Year Ended January 31, 2014
11-16
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–18
1. Retained earnings is not part of paid-in capital.
not included as a part of stockholders’ equity.
One possible corrected Stockholders’ Equity section of the balance sheet using Method 1
of Exhibit 4 is as follows:
Paid-in capital:
Stockholders’ Equity
11-17
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–19
Paid-In
Common Capital
Stock, in Excess Treasury Retained
$40 par of Par Stock Earnings
Purchased 12,000
shares as treasury
stock $(552,000)
Ex. 11–20
Ex. 11–21
Assets Liabilities
(1) Authorizing and issuing stock
certificates in a stock split 0 0
(2) Declaring a stock dividend 0 0
in (2) 0 0
(4) Declaring a cash dividend 0 +
0
0
0
–
Stockholders’
Equity
(552,000)
I-CARDS INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2014
Total
11-18
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–22
Jan. 8 No entry required. The stockholders’ ledger
would be revised to record the increased
number of shares held by each stockholder.
Ex. 11–23
Earnings per Share =
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
11-19
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–24
= $3.64 per share
b. Year 3 Year 2 Year 1
Earnings per share…………………………………
…
$2.86 $3.24 $3.64
a. Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
=Earnings per Share
11-20