EXERCISE 11-6
(a) June 15 Cash Dividends (69,000* X $1.50) ….. 103,500
Dividends Payable …………………. 103,500
*60,000 shares + 9,000 shares
EXERCISE 11-7
Before
Action
After Stock
Dividend
After Stock
Split
Stockholders’ equity
Paid-in capital
$ 648,000
Retained earnings
Outstanding shares
EXERCISE 11-8
WELLS FARGO & COMPANY
Partial Balance Sheet
December 31, 2017
(in millions)
Stockholders’ equity
Paid-in capital
Capital stock
Preferred stock ………………………………………….. $8,485
Common stock,
$1 23
par value,
6 billion shares authorized,
EXERCISE 11-9
RYDER CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
8% Preferred stock, $100 par
value, noncumulative,
6,000 shares issued ………………………. $ 600,000
Common stock, no par,
EXERCISE 11-10
PAISAN INC.
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
8% Preferred stock, $50 par value,
Additional paid-in capital
Paid-in capital in excess of par
value—preferred stock ………………… 24,000
Paid-in capital in excess of stated
value—common stock …………………. 1,200,000
EXERCISE 11-11
2017 2016
Payout ratio
$298
$504 = 59.1%
$611
$555 =110.1%
EXERCISE 11-12
2017 2016
Payout ratio
$471 = 23.5%
$2,006
394 = 18.3%
$2,157
EXERCISE 11-13
(a) 2017:
$182,000–$8,000 = 17.4%
$1,000,000
(b) Kojak Corporation’s net income increased in part because it retired bonds
and eliminated the interest expense associated with the bonds. Such an
(c) 2017:
$200,000 =16.7%
$1,200,000
EXERCISE 11-14
(a)
Plan One
Issue Stock
(b)
Plan Two
Issue Bonds
Income before interest and taxes ………
$800,000
$800,000
Interest ($2,000,000 X 12%) ……………….
240,000
Income before taxes …………………………
800,000
560,000
Income tax expense (30%) ………………..
240,000
168,000
Net income ……………………………………….
$560,000
$392,000
Outstanding shares ………………………….
140,000
90,000
Earnings per share …………………………...
EXERCISE 11-15
(a)
2016
2017
Pre-debt net income ………………………….
$100,000
$100,000
Net income ……………………………………….
$100,000
$ 84,000
Outstanding shares …………………………..
40,000
Earnings per share …………………………...
$ 2.50
Adjustment for interest expense
(b)
2016
2017
Net income
(c)
0
$1,000,000
EXERCISE 11-15 (Continued)
(d) The issuance of debt reduced the company’s net income because of
the interest cost that was incurred. However, the debt significantly
increased the company’s earnings per share because it was used to
acquire treasury stock. This reduced the number of outstanding shares,
thus increasing earnings per share.
*EXERCISE 11-16
(a) Stock Dividends (22,500* X $15) ……………………. 337,500
Common Stock Dividends
Distributable (22,500 X $10) …………………. 225,000
Paid-in Capital in Excess of Par Value—
Common Stock (22,500 X $5) ……………….. 112,500
SOLUTIONS TO PROBLEMS
PROBLEM 11-1A
(a) Jan. 10 Cash (70,000 X $4) ……………………….. 280,000
Common Stock (70,000 X $1) ….. 70,000
Paid-in Capital in Excess of
Stated Value—Common
Stock (120,000 X $5) ……………. 600,000
Sept. 1 Cash (5,000 X $5) …………………………. 25,000
Common Stock (5,000 X $1) ……. 5,000
Paid-in Capital in Excess of
Stated Value—Common
(b)
Preferred Stock
Paid-in Capital in Excess of
Par Value—Preferred Stock
3/1 600,000
3/1 36,000
PROBLEM 11-1A (Continued)
Common Stock
Paid-in Capital in Excess of
Stated Value—Common Stock
1/10 70,000
1/10 210,000
5/1 120,000
5/1 600,000
9/1 5,000
9/1 20,000
12/31 Bal. 830,000
(c) TIDAL CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
6% Preferred stock, $50 par
value, 20,000 shares
authorized and 15,000
shares issued ………………………… $750,000
Common stock, no-par,
PROBLEM 11-2A
(a) Feb. 1 Cash ………………………………………………….. 30,000
Common Stock (5,000 X $4) ………….. 20,000
Paid-in Capital in Excess of
Stated Value—Common Stock …… 10,000
Dec. 31 Income Summary ……………………………….. 280,000
Retained Earnings ……………………….. 280,000
31 Retained Earnings ……………………………… 145,500
Cash Dividends
(b)
Preferred Stock
Paid-in Capital in Excess of
Par Value—Preferred Stock
1/1 Bal. 300,000
1/1 Bal. 15,000
12/31 Bal. 300,000
12/31 Bal. 15,000
1/1 Bal. 1,000,000
1/1 Bal. 480,000
PROBLEM 11-2A (Continued)
Retained Earnings
Treasury Stock
12/31 145,500
1/1 Bal. 688,000
1/1 Bal. 40,000
12/31 280,000
3/20 7,000
12/31 Bal. 822,500
12/31 Bal. 47,000
10/1 21,000
12/31 145,500
(c) CYRUS CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
7% Preferred stock, $100
par value, noncumulative,
5,000 shares authorized,
3,000 shares issued and
Additional paid-in capital
Paid-in capital in excess of par
value—preferred stock ………….. 15,000
Paid-in capital in excess of stated
value—common stock …………… 490,000
PROBLEM 11-2A (Continued)
(d)
$124,500
Payout ratio = = 44.5%
$280,000
$280,000 – $21,000 $259,000
Earnings per share = = = $1.05
(245,000* + 249,000* *) ÷ 2 247,000
PROBLEM 11-3A
JONS COMPANY
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
9% Preferred stock, $100 par value,
Additional paid-in capital
Paid-in capital in excess of par
value—preferred stock ………………… 840,000
Paid-in capital in excess of par
value—common stock …………………. 1,800,000
Total additional paid-in capital …. 2,640,000
PROBLEM 11-4A
(a)
Retained Earnings
Dec. 31 400,000
Jan. 1 Balance 2,380,000
Dec. 31 Balance 2,860,000
(b) WAITE CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
8% Preferred stock, $100 par
value, noncumulative,
20,000 shares authorized,
10,000 shares issued and
outstanding ………………………………….. $1,000,000
Common stock, no-par, $5
stated value, 600,000 shares
authorized, 300,000 shares
issued and outstanding ………………… 1,500,000
PROBLEM 11-5A
(a) 1. Cash ……………………………………………………… 170,000
2. Cash ……………………………………………………… 3,520,000
3. Treasury Stock (4,000 X $9) ……………………. 36,000
PROBLEM 11-5A (Continued)
(b) LAYES CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
shares issued, and 396,000
shares outstanding ………………… 2,000,000
Total capital stock ………………. $2,150,000
Additional paid-in capital
Paid-in capital in excess of par
PROBLEM 11-6A
KIMBEL INC.
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Common stock, $1 par value, 2,000,000 shares
authorized, 710,000* shares issued, and
690,000 shares outstanding ……………………………… $ 710,000
Additional paid-in capital
PROBLEM 11-7A
(a) 2017 2016
(1) Return on assets
$2,240,000 = 14.3%
$2,500,000 = 14.1%
(2) Return on common
$2,240,000 – $300,000 = 20.6%
$2,500,000 – $300,000 = 15.6%
(3) Payout ratio
$890,000 = 39.7%
$1,026,000 = 41.0%
(4) Debt to assets ratio
$6,000,000 = 41.4%
$3,000,000 = 17.8%
(5) Times interest
($2,240,000 + $500,000 + $670,000)
$500,000
($2,500,000 + $140,000 + $750,000)
$140,000
(b) Spahn’s net income declined from $2,500,000 to $2,240,000. Its return on
assets increased slightly, but its return on common stockholders’
(c) Spahn’s debt to assets ratio increased from 17.8% to 41.4% and its
(d) It appears that the decision to issue debt to purchase common stock
was wise. Spahn’s 10% interest rate was less than its return on assets of
14.3%. This resulted in the 32% increase in return on common stock-
holders’ equity. Although the solvency ratios declined, Spahn does not