CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Ex. 11–25
a. OfficeMax:
$34,894,000 – $2,123,000
85,881,000 shares
Earnings per Share
Net Income – Preferred Dividends
=
Avg. Number of Common Shares Outstanding
=
11-21
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–1A
1.
Total Per Per
Dividends Total Share Total Share
2011…………
…
$ 20,000 $20,000 $0.20 $ 0 $0.00
2012…………
…
36,000 36,000 $0.36 0 0.00
2. Average annual dividend for preferred: $0.30 per share ($1.80 ÷ 6)
Average annual dividend for common: $0.12 per share ($0.72 ÷ 6)
PROBLEMS
Year
Preferred Dividends Common Dividends
11-22
…
…
…
…
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–2A
11 Building 3,375,000
Land 1,500,000
Common Stock (125,000 shares × $35) 4,375,000
Paid-In Capital in Excess of Par—
May
11-23
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–3A
a. Cash (500,000 shares × $8)
Common Stock (500,000 shares × $3) 1,500,000
Paid-In Capital in Excess of Par—Common
d. Cash (20,000 shares × $9)
Treasury Stock (20,000 shares × $7) 140,000
Paid-In Capital from Sale of Treasury Stock 40,000
[20,000 shares × ($9 – $7)]
e. Cash (5,000 shares × $6)
Paid-In Capital from Sale of Treasury Stock
*
Beginning of year 80,000 shares 2,000,000 shares
(a) 500,000
Outstanding Shares of Stock
180,000
30,000
5,000
Common StockPreferred Stock
4,000,000
11-24
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4A
1. and 2.
Jan. 1 Bal. 7,500,000
Apr. 10 1,500,000
Jan. 1 Bal. 825,000
Apr. 10 300,000
Dec. 31 493,800 Jan. 1 Bal. 33,600,000
Dec. 31 1,125,000
Dec. 31 Bal. 34,231,200
Jan. 1 Bal. 450,000 June 6 450,000
Common Stock
Paid-In Capital in Excess of Stated Value—Common Stock
Retained Earnings
Treasury Stock
11-25
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4A (Continued)
2.
Jan. 22 Cash Dividends Payable 28,000
[(375,000 shares – 25,000 shares) × $0.08]
Cash 28,000
Apr. 10 Cash 1,800,000
Common Stock (75,000 shares × $20) 1,500,000
July 5 Stock Dividends [(375,000 shares + 450,000
75,000 shares) × 4% × $25]
Stock Dividends Distributable 360,000
(18,000 shares × $20)
Paid-In Capital in Excess of Stated Value— 90,000
Common Stock [18,000 shares × ($25 – $20)]
Aug. 15 Stock Dividends Distributable 360,000
Common Stock 360,000
11-26
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4A (Concluded)
3.
Retained earnings, January 1, 2016 $33,600,000
Net income $1,125,000
4.
Paid-in capital:
Common stock, $20 stated value (500,000 shares
authorized, 468,000 shares issued) $9,360,000
Stockholders’ Equity
MORROW ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2016
11-27
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–5A
Jan. 9 No entry required. The stockholders’ ledger would be revised to
record the increased number of shares held by each stockholder
and new par value.
Feb. 28 Treasury Stock (40,000 shares × $28) 1,120,000
Cash 1,120,000
May 1 Cash Dividends {(75,000 shares × $0.80) + 199,200
11-28
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–1B
1.
Total Per Per
Dividends Total Share Total Share
2011………… $ 24,000 $ 24,000 $ 0.96 $0 $0.00
2012………… 10,000 10,000 0.40 0 0.00
*
$101,000 = (2011 dividends in arrears of $11,000) +
3. a. 1.8% ($1.80 ÷ $100)
Year
Preferred Dividends Common Dividends
11-29
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–2B
9 Cash 1,500,000
Mortgage Note Payable 1,500,000
17 Cash (20,000 shares × $126) 2,520,000
Preferred Stock (20,000 shares × $120) 2,400,000
Oct.
11-30
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–3B
a. Treasury Stock (87,500 shares × $8)
Cash 700,000
Paid-In Capital in Excess of Par—Common
Stock [400,000 shares × ($13 – $9)] 1,600,000
e. Cash (18,000 shares × $7.50)
Paid-In Capital from Sale of Treasury Stock
[18,000 shares × ($8.00 – $7.50)]
(c) 20,000
(d) 400,000
(e) 18,000
80,000 shares 2,135,500 shares
Cash dividends per share $1.60 $0.05
700,000
9,000
135,000
××
11-31
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4B
1. and 2.
Jan. 1 Bal. 3,100,000
Apr. 13 1,000,000
Dec. 31 248,068 Jan. 1 Bal. 4,875,000
Dec. 31 775,000
Dec. 31 Bal. 5,401,932
Common Stock
Retained Earnings
11-32
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4B (Continued)
2.
Jan. 15 Cash Dividends Payable 34,320
[(620,000 shares – 48,000 shares) × $0.06]
Cash 34,320
Apr. 13 Cash (200,000 shares × $8) 1,600,000
Common Stock (200,000 shares × $5) 1,000,000
Paid-In Capital in Excess of Stated Value— 600,000
Common Stock [200,000 shares × ($8 – $5)]
July 16 Stock Dividends Distributable 123,000
Common Stock 123,000
Oct. 30 Treasury Stock (50,000 shares × $6) 300,000
Cash 300,000
11-33
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4B (Concluded)
Retained earnings, January 1, 2016 $4,875,000
Net income $ 775,000
4.
Paid-in capital:
Common stock, $5 stated value (900,000 shares
authorized, 844,600 shares issued) $4,223,000
Excess of issue price over stated value 1,901,500
Stockholders’ Equity
NAV-GO ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2016
11-34
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–5B
Jan. 15 No entry required. The stockholders’ ledger would be revised to record the
increased number of shares held by each stockholder and new par value.
Mar. 1 Cash Dividends [(100,000 shares × $0.25) + 81,000
(800,000 shares × $0.07)]
Cash Dividends Payable 81,000
Apr. 30 Cash Dividends Payable 81,000
Cash 81,000
11-35
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–1
At the time of this decision, the WorldCom board had come under intense scrutiny.
This was the largest loan by a company to its CEO in history. The SEC began an
investigation into this loan, and Bernie Ebbers was eventually terminated as the
CEO, with this loan being cited as part of the reason. The board indicated that
the decision to lend Ebbers this money was to keep him from selling his stock
and depressing the share price. Thus, it claimed that it was actually helping
Some press comments:
1. When he borrowed money personally, he used his WorldCom stock as
collateral. As these loans came due, he was unwilling to sell at “depressed
2. It was astonishing to read the other day that the board of directors of the
United States’ second-largest telecommunications company claims to have
had its shareholders’ interests in mind when it agreed to grant more than $430
million in low-interest loans to the company’s CEO, mainly to meet margin
CASES & PROJECTS
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–1 (Concluded)
best one by far—at least from the point of view of the shareholders—was to
CP 11–2
Lou and Shirley are behaving in a professional manner as long as full and
CP 11–3
1. This case involves a transaction in which a security has been issued that has
characteristics of both stock and debt. The primary argument for classifying
the issuance of the common stock as debt is that the investors have a legal
right to an amount equal to the purchase price (face value) of the security.
2. In practice, the $25 million stock issuance would probably be classified as
common stock. However, full disclosure should be made of the 5% of sales
and $120 per share payment obligations in the notes to the financial statements.
CP 11–4
a. 500 shares × ($1.12 ÷ 4) = $140
c. 45.2% = ($38.13 – $26.26) ÷ $26.26
CP 11–5
1. Before a cash dividend is declared, there must be sufficient retained earnings
and cash. On December 31, 2016, the retained earnings balance of $4,630,000
is available for use in declaring a dividend. This balance is sufficient for the
payment of the normal quarterly cash dividend of $0.50 per share, which would
3.5:1 ($7,000,000 ÷ $2,000,000) on December 31, 2016. However, after deducting
the $3,000,000 committed to store modernization and product-line expansion,
the ratio drops to 2:1 ($4,000,000 ÷ $2,000,000). If the cash dividend were
2. Given the cash and working capital position of Motion Designs Inc. on
CP 11–5 (Concluded)
a. From the point of view of a stockholder, the declaration of a stock
dividend would continue the dividend declaration trend of Motion Designs
Inc. In addition, although the amount of the stockholders’ equity and
CP 11–6
Note to Instructors: The purpose of this activity is to familiarize students with
1. Google Inc.
3. The following excerpts are taken from Google’s 10-K:
“Google is a global technology leader focused on improving the ways people
connect with information. We aspire to build products that improve the lives
11-39
CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–6 (Concluded)
4. $93,798,000,000
6. $10,737,000,000
$0.001; no shares issued or outstanding
9,000,000,000 authorized shares of Class A common stock with a par value of
$0.001; outstanding shares of 62,530,474
3,000,000,000 authorized shares of Class C common stock with a par value of
$0.001; no shares issued or outstanding
Classes A, B, and C have the same rights except for voting. Class A stock has
one vote per share; Class B stock has 10 votes per share; Class C stock has no
9. $682.33 – $1,068.00; as of November 29, 2013
10. Google Inc. does not pay cash dividends. In its SEC 10-K filing for the year ending
December 31, 2012, Google states:
“We have never declared or paid any cash dividend on our common stock. We
intend to retain any future earnings and do not expect to pay any cash dividends