b.
Retained earnings, December 31, 2017
As originally reported 7,285,000$
Less: prior period adjustment 350,000
As restated 6,935,000$
Net income
2,540,000
d.
The single 2019 $8.00 figure for EPS is unfavorable in comparison with 2018 performance.
Since 2019 has only one EPS figure, it should be compared to the earnings per share from
PROBLEM 12.2A
SLICK SOFTWARE, INC.
For the Year Ended December 31, 2018
Statement of Retained Earnings
SLICK SOFTWARE, INC. (concluded)
35 Minutes, Strong
a.
Net sales 10,800,000$
Costs and expenses:
Cost of goods sold 6,000,000$
Selling expenses 1,104,000
Earnings per share on common stock:
Income from continuing operations
($1,056,000 ÷ 180,000 shares) 5.86$
Note: Selected EPS numbers have been rounded $.01 in order for EPS schedule to foot.
PROBLEM 12.3A
PHOENIX, INC.
For the Year Ended December 31, 2018
Income Statement
PHOENIX, INC.
Loss from settlement of litigation 24,000
Discontinued operations:
Operating loss on discontinued operations (net of
Loss on disposal of discontinued operations (net of
b.
Retained earnings, December 31, 2017
As originally reported 2,175,000$
Add: Prior period adjustment (net of income tax) 96,000
As restated 2,271,000$
c.
The “gain on sale of treasury stock” represents the excess of reissue price received over the
cost Phoenix paid to acquire some of its own shares of stock. Although a corporation may
PROBLEM 12.3A
PHOENIX, INC.
For the Year Ended December 31, 2018
Statement of Retained Earnings
PHOENIX, INC. (concluded)
20 Minutes, Easy
Total Number Book Value
Stockholders’ of Shares per
Equity Outstanding Share
Beginning balance 840,000$ 40,000 21.00$
Jan. 10 Declared and distributed 5% stock div. 2,000
Balance 840,000$ 42,000 20.00$
Mar. 15
Acquired 2,000 shares of treasury stock
at cost of $21.00 per share (42,000) (2,000)
PROBLEM 12.4A
ALBERS, INC.
Balance 798,000$ 40,000 19.95$
May 30 Reissued 2,000 shares of treasury stock
at price of $31.50 per share 63,000 2,000
Balance 861,000$ 42,000 20.50$
July 31 Capital stock split 2-for-1 42,000
Declared $1.10 per share cash dividend
Balance 768,600 84,000 9.15$
20 Minutes, Medium
a. Capital Stock Additional Total
($10 par Paid-in Retained Treasury Stockholders’
value) Capital Earnings Stock Equity
Balances, January 1, 20xx 2,200,000$ 3,530,000$ 1,900,000$ –$ 7,630,000$
Prior period adjustment (net of income tax benefit) (160,000) (160,000)
Issuance of common stock; 10,000 shares @ $68 100,000 580,000 680,000
PROBLEM 12.5A
RIVERTON CORPORATION
RIVERTON CORPORATION
Statement of Stockholders’ Equity
For the Year Ended December 31, 20xx
(11,500 shares at market price of $40 per share) 115,000 345,000 (460,000) 0
Sale of 500 treasury shares @ $72 1,000 35,000 36,000
Net income 1,690,000 1,690,000
b.
Declaration/distribution of a 5% stock dividend has no effect on total stockholders’ equity.
Declaration of a cash dividend reduces total stockholders’ equity by the amount of the
dividend.
The two types of dividends do not have the same impact upon stockholders’ equity. A cash
PROBLEM 12.5A
RIVERTON CORPORATION (concluded)
40 Minutes, Strong
Jan 3 Dividends 382,000
Dividends Payable 382,000
Apr 12 240,000
240,000
May 9 Cash 176,000
June 1 798,000
Additional Paid-in Capital: Treasury Stock
Retained Earnings
Stock Dividend to Be Distributed
Additional Paid-in Capital: Stock Dividends
Sold 4,000 shares of treasury stock, which cost
value $1. To be distributed on June 30 to
stockholders of record.
Declared a 5% stock dividend (19,000 shares) on
30 19,000
Capital Stock 19,000
Aug 4 22,200
1,800
Dec 31 1,928,000
1,928,000
Dec 31 382,000
Retained Earnings
To close Income Summary account for the year.
Retained Earnings
at a price of $37 per share.
Income Summary
Cash
Additional Paid-in Capital: Treasury Stock
dividend.
To close Dividends account.
2018
To record declaration of $1 per share cash
PROBLEM 12.6A
a.
General Journal
THOMPSON SERVICE
Treasury Stock
Purchased 6,000 shares of treasury stock at $40
per share.
Stock Dividend to Be Distributed
Cash
Issued 19,000 shares of capital stock as 5% stock
Feb 15 382,000
record on Jan. 31.
Dividends Payable
dividend payable on Feb. 15 to stockholders of
To record payment of dividend declared Jan. 3.
b.
Stockholders’ equity:
Capital stock, $1 par value, 500,000 shares authorized,
401,000 shares issued, of which 1,400 are held in the treasury 401,000$
Additional paid-in capital:
From issuance of capital stock 4,202,000$
From stock dividend 779,000
From treasury stock 14,200 4,995,200
Total paid-in capital 5,396,200
c. Computation of maximum legal cash dividend
per share at Dec. 31, 2018:
Retained earnings at Dec. 31, 2018 3,452,600$
Less: Restriction of retained earnings for
treasury stock owned 56,000
Unrestricted retained earnings 3,396,600$
held in treasury) 399,600
Maximum legal cash dividend per share ($3,396,600
divided by 399,600 shares) 8.50$
PROBLEM 12.6A
THOMPSON SERVICE
December 31, 2018
Partial Balance Sheet
THOMPSON SERVICE (concluded)
Retained earnings at beginning of year 2,704,600$
Less: Cash dividend declared Jan. 3 382,000$
30 Minutes, Strong
Net
(from
Income
Source
NE DNE NE
b. 1.
2.
3.
4.
5.
Payment of a cash dividend has no effect on revenue or expenses, but it reduces cash.
The purchase of treasury stock has no effect on either revenue or expenses and,
Declaration of a cash dividend has no immediate effect upon net income or cash flows.
Reissuance of treasury stock at a price less than its original cost results in a loss, but
these losses are not recorded in the income statement. Instead additional paid-in
1
a.
Net Cash Flow
Current
Assets
Event
PROBLEM 12.7A
Stockholders’
Equity
TECH PROCESS, INC.
2
3
4
5
50 Minutes, Strong
a.
Stockholders’ equity:
Capital stock:
Common stock, $10 par, 500,000 shares authorized,
150,000 shares issued, of which 10,000 are held
in the treasury 1,500,000$
Stock dividend to be distributed (1) 140,000
(3) Net income for 2017 940,000$
Less: Stock dividend (14,000 shares x $35) 490,000
Retained earnings at end of 2017 450,000$
b.
Stockholders’ equity:
Capital stock:
Common stock, $5 par, 1,000,000 shares authorized,
328,000 shares issued and outstanding (1) 1,640,000$
Additional paid-in capital:
From issuance of common stock 3,000,000$
From stock dividend 350,000
From treasury stock (2) 50,000 3,400,000
Total paid-in capital 5,040,000$
@ $5 par
Net income for 2018 1,080,000
Retained earnings at end of 2018 874,000$
December 31, 2018
PROBLEM 12.8A
MANDELLA CORPORATION
December 31, 2017
Partial Balance Sheet
MANDELLA CORPORATION
MANDELLA CORPORATION
Partial Balance Sheet
Additional paid-in capital:
From issuance of common stock 3,000,000$
From stock dividend (2) 350,000 3,350,000
(1) (150,000 shares – 10,000 shares) x 10% = 14,000 shares
@$10 par
Par value (14,000 shares x $10) (140,000)
Additional paid-in capital: stock dividend 350,000$
25 Minutes, Strong
a.
(Dollars in
Thousands)
b.
Net loss (18,301)$
Less: Preferred dividend requirements (2,778)
Loss per share ($21,079 ÷ 39,739) (0.53)$
PROBLEM 12.9A
ESPER CORP.
For the Year Ended December 31, Current Year
Partial Income Statement
ESPER CORP.
30 Minutes, Easy
a.
Net sales 61,440,000$
Costs and expenses (including income taxes on continuing
Earnings per share of common stock:
Earnings from continuing operations ($3,576,000 ÷
Income from discontinued operations ($5,000,000 ÷
b.
Estimated net earnings per share next year:
SOLUTIONS TO PROBLEMS SET B
PROBLEM 12.1B
PACIFIC AIRLINES
For the Year Ended December 31, Current Year
Income Statement
PACIFIC AIRLINES
operations) 53,980,000
Income before income tax 5,960,000$
Income from continuing operations 3,576,000$
Discontinued operations:
Operating income from car rental (net of income tax) 670,000$
30 Minutes, Medium
a.
Net sales 37,400,000$
Costs and expenses (including applicable income tax) 21,500,000
Earnings per share:
Earnings from continuing operations
[($15,900,000 – $600,000*) ÷ 800,000 shares] 19.13$
Net income 18.75$
[($15,595,000 – $600,000 preferred dividends) ÷
*Preferred dividends: 100,000 shares x $6 = $600,000
PROBLEM 12.2B
BEACH, INC.
For the Year Ended December 31, 2018
Condensed Income Statement
BEACH, INC.
Income from continuing operations 15,900,000$
Discontinued operations:
Operating income (net of income tax) 205,000$
Loss on disposal (net of income tax benefit) (510,000) (305,000)
Net income 15,595,000$
b.
Retained earnings, December 31, 2017
As originally reported 10,700,000$
c.
Total cash dividends declared during 2018 (data given) 2,000,000$
d.
The single 2019 $15.00 figure for EPS is unfavorable in comparison with 2018 performance.
PROBLEM 12.2B
BEACH, INC.
For the Year Ended December 31, 2018
Statement of Retained Earnings
BEACH, INC. (concluded)
Net income
35 Minutes, Strong
a.
Net sales 10,200,000$
Costs and expenses:
Cost of goods sold 4,000,000$
Selling expenses 1,050,000
Earnings per share on common stock:
Earnings from continuing operations ($3,688,000 ÷
500,000 shares) 7.38
Loss from discontinued operations ($420,000 ÷
PROBLEM 12.3B
DEXTER, INC.
For the Year Ended December 31, 2018
Income Statement
DEXTER, INC.
General and administrative expenses 840,000
Loss from settlement of litigation 10,000
Discontinued operations:
Operating loss on discontinued operations (net of
income tax benefit) (180,000)$
Loss on disposal of discontinued operations (net of
b.
Retained earnings, December 31, 2017
As originally reported 3,200,000$
Add: Prior period adjustment (net of income tax) 190,000
c.
The “gain on sale of treasury stock” represents the excess of reissue price received over the
cost Dexter paid to acquire some of its own shares of stock. Although a corporation may
PROBLEM 12.3B
DEXTER, INC.
For the Year Ended December 31, 2018
Statement of Retained Earnings
DEXTER, INC. (concluded)
20 Minutes, Easy
Total Number Book Value
Stockholders’ of Shares per
Equity Outstanding Share (rounded)
Beginning balance 1,200,000$ 20,000 60.00$
Jan. 16 Declared and distributed 5% stock div. 1,000
Balance 1,200,000$ 21,000 57.14$
Feb. 9 Acquired 300 shares of treasury stock
PROBLEM 12.4B
SUNSTONE, INC.
Balance 1,167,000$ 20,700 56.38$
Mar. 3 Reissued 300 shares of treasury stock
Balance 1,206,000$ 21,000 57.43$
Nov. 22 Declared $12.00 per share cash dividend (504,000)