Chapter 11 – Reporting and Interpreting Owners’ Equity
11–21
E11–19.
Item
Effect of Cash Dividend (Preferred)
Effect of Stock Dividend (Common)
Assets
–No effect on declaration date.
–Decreased by the amount of the
dividend ($7,200) on payment
date.
No effect because no assets are
disbursed.
E11–20.
July 15
Retained earnings (-SE) ………………………………………………..
119,900,000
Cash (-A) …………………………………………………………………
Declaration and payment of preferred dividends.
Retained earnings (-SE) ………………………………………………..
691,688,600
Cash (-A) …………………………………………………………………
Declaration and payment of common dividends.
Shares issued ………………….
Treasury stock ………………….
Shares outstanding …………..
E11–21.
dividend (retained earnings
decreased by $7,200).
–Retained earnings reduced and
contributed capital increased by
same amount ($120,000).
Chapter 11 – Reporting and Interpreting Owners’ Equity
Req. 1
Duke Energy is a utility company that is very established. They have very little
opportunity for growth and they have stable business operations. Therefore, they have
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–23
E11–22.
Req. 1
Stockholders’ Equity
Before Stock
Dividend
After Stock
Dividend
Contributed capital:
Common stock, authorized 65,000 shares
Req. 2
Item
Effects of Stock Dividend
Assets
No change because no assets were disbursed.
Liabilities
No change because no liability was created (no assets were to be
disbursed).
E11–23.
July 13, 2009
Retained earnings (-SE)………………………………………………..
1,320,000,000
Dividends payable (+L) ……………………………………………..
1,320,000,000
3,000 (million) shares x $0.44= $1,320,000,000
Dividends payable (-L) ………………………………………………….
Cash (-A) ……………………………………………………….
Capital in excess of par value ……………………….
Retained earnings …………….
Chapter 11 – Reporting and Interpreting Owners’ Equity
E11–24.
Comparative results:
Items
Before Dividend
and Split
After Stock
Dividend
After Stock
Split
Common stock account
$600,000
$900,000
$600,000
Par per share
$3
$3
$2.50
Shares outstanding
Capital in excess of par
$900,000
$ 900,000
Comments: Neither the stock dividend nor stock split changed total stockholders’ equity
because neither involved the disbursement of assets. The stock dividend capitalized
outstanding and (2) decrease par value per share.
E11–25.
Req. 1
February 12, 2007—No entry
February 20, 2007—No entry
March 16, 2007
Retained earnings (-SE)………………………………………………..
Req. 2
Without additional information, one cannot determine the impact on future cash
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–25
E11–26.
Comparative results:
Items
Before Dividend
and Split
After Stock
Dividend
After Stock
Split
Common stock account
$640,000
$896,000
$640,000
Comments: Neither the stock dividend nor stock split changed total stockholders’ equity
because neither involved the disbursement of assets. The stock dividend reduced
E11–27.
Req. 1
A corporation does not need to earn net income in a given year in order to declare and
pay dividends. There are two requirements 1) the balance of retained earnings should
be sufficient to pay dividends, and 2) there must be sufficient cash on hand.
Req. 2
Clearly the board determined that the balances in retained earnings and cash were
sufficient to pay dividends. The board probably analyzed cash flow for the current year
Par per share
$ 4.80
Shares outstanding
133,333
Capital in excess of par
$ 280,000
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–26
E11–28.
The fact that dividends are in arrears indicates that the company has been experiencing
Chapter 11 – Reporting and Interpreting Owners’ Equity
PROBLEMS
P11–1.
1.
Shares authorized (given) ……………………………………………………………….
200,000
Shares outstanding (125,000 – 3,000) ………………………………………………
122,000
2. Capital in excess of par: $2,125,000 – (125,000 shares issued x $10 par) =
$875,000.
4. Dividend per share: $73,200 122,000 shares = $0.60.
6. Stock split, 100%: Par value per share after the split, $10 2 = $5. Outstanding
7. Entry for the stock split—None, because the total par value amount before and
after the split is the same; retained earnings are not capitalized in a stock split.
8. Entry for stock dividend (capitalize retained earnings for market value of $21 per
share):
Retained earnings (122,000 shares x 10% x $21) (-SE) …….
256,200
Common stock (122,000 shares x 10% x $10) (+SE) ……..
122,000
134,200
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–28
P11–2.
Stockholders’ Equity
Contributed capital:
Preferred stock authorized 21,000 shares; issued and outstanding,
6,500 shares …………………………………………………………………………..
$ 65,000
P11–3.
(a)
Cash (66,000 shares x $9)(+A) ………………………………………
594,000
Common stock (66,000 shares x $5) (+SE) …………………
330,000
Contributed capital in excess of par, common (66,000 x
$4) (+SE) …………………………..………………………………….
264,000
.
(b)
Cash (9,000 shares x $20) (+A) ……………………………………..
180,000
Preferred stock (9,000 shares x $10) (+SE) ………………….
Contributed capital in excess of par, preferred (+SE) ……..
.
(c)
Cash (1,000 shares x $20) + (1,500 shares x $10) (+A) ……
Preferred stock (1,000 shares x $10) (+SE) ………………….
Common stock (1,500 shares x $5) (+SE) ……………………
Contributed capital in excess of par, preferred (+SE) ……..
Contributed capital in excess of par, common (+SE) ……..
Common stock authorized 50,000 shares; issued and outstanding,
43,000 shares …………………………………………………………………………
Capital in excess of par, preferred ………………………………………………..
Capital in excess of par, common …………………………………………………
Total contributed capital …………………………………………………………..
Retained earnings …………………………………………………………………………
Total stockholders’ equity ……………………………………………………………
$690,000
Chapter 11 – Reporting and Interpreting Owners’ Equity
P11–4.
Req. 1 (in millions)
(a)
Cash (+A) …………………………..……………………………………….
136.5
Common stock (+SE) …………………………..…………………..
136.5
.
.
(a)
Cash (+A) …………………………..……………………………………….
136.5
134.4
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–30
P11–5.
Stockholders’ Equity
Contributed capital:
Common stock, par $1, authorized 200,000 shares; issued 100,000
P11–6.
(a)
Treasury Stock (+XSE, –SE) ………………………………………….
165,258
Cash (-A) ……………………………………………………….
165,258
(b)
Retained Earnings (-SE) ……………………………………………….
66,086
Dividends Payable (+L) ……………………………………………..
66,086
Cash (-A) ……………………………………………………….
66,086
Cash (+A) ……………………………………………………………………
903,825
Common Stock (+SE) ……………………………………………….
50,000
Capital in Excess of Par (+SE) …………………………..
853,825
Capital in excess of par ……………………………………………………………………
Total contributed capital ………………………………………………………………..
Retained earnings ………………………………………………………………………………
Less: Treasury stock held (15,000 shares x $15) …………………………………
Chapter 11 – Reporting and Interpreting Owners’ Equity
P11–7.
Req. 1
A stock dividend is a dividend paid in additional stock of the issuing company while
a cash dividend is paid in cash.
Req. 2
Stock dividends are classified as either large or small. A large stock dividend
Req. 3
The sale of treasury stock for more than cost has no impact on the reported income
for a company. The sale does affect the Statement of Cash Flows because it is an
inflow of cash from financing activities.
Req. 4
There are a number of strategic reasons why a corporation may want to purchase
P11–8.
Req. 1
Treasury Stock (+XSE, –SE) ………………………………………….
625.8
Cash (-A) ……………………………………………………….
625.8
Req. 2
Cash (+A) ……………………………………………………………………
Treasury Stock (-XSE, +SE) …………………………..
Capital in Excess of Par (+SE) …………………………..
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–32
P11–9.
Req. 1
Case A—Preferred is noncumulative (total amount to distribute, $31,000):
Preferred
(8,000
shares)
Common
(35,000
shares)
Total
Preferred ($120,000 x 10%) …………………………..………
$ 12,000
$ 12,000
Balance to common ($31,000 – $12,000) ………………..
$19,000
19,000
$ 12,000
$19,000
$31,000
Per share ……………………………………………………………
$1.50
$0.54
Preferred:
Arrears ($120,000 x 10% x 2 years) …………………….
$ 24,000
Current year ($120,000 x 10%) …………………………..
$25,000
Per share ……………………………………………………………
Preferred:
Arrears ($120,000 x 10% x 2 years) …………………….
$ 24,000
$ 24,000
Current year ($120,000 x 10%) …………………………..
12,000
12,000
Balance to common ($67,000 – $36,000)
$31,000
31,000
$31,000
$67,000
Per share ……………………………………………………………
$0.89
Chapter 11 – Reporting and Interpreting Owners’ Equity
11–33
P11–9. (continued)
Req. 2
Schedule of Comparative Differences (with comments)
Item
Amount of Dollar Increase (Decrease)
Cash Dividend – Case C
Stock Dividend
Assets
$67,000 decrease to cash
No assets were disbursed.
Summary comment:
(1) A cash dividend decreases assets and stockholders’ equity by the amount of the
dividend because resources were disbursed.
(2) A stock dividend does not change total assets or total stockholders’ equity because
P11–10.
Req. 1
Heather feels some concern about whether Scott is looking in the right place on the
Statement of Cash Flows (SCF) for dividends. She shouldn’t be concerned; dividends
date. The net effect is zero.