1. No. Common stock with a higher par is not necessarily a better investment than common
stock with a lower par because par is an amount assigned to the shares.
2. The broker is not correct. Corporations are not legally liable to pay dividends until the
dividends are declared. If the company that issued the preferred stock has operating losses,
6. The primary purpose of a stock split is to bring about a reduction in the market price per
share and thus to encourage more investors to buy the company’s shares.
7. a. It has no effect on revenue or expense.
b. It reduces stockholders’ equity by $3,000,000.
8. a. It has no effect on revenue.
b. It increases stockholders’ equity by $3,750,000.
CHAPTER 13
CORPORATIONS: ORGANIZATION, STOCK
DISCUSSION QUESTIONS
TRANSACTIONS, AND DIVIDENDS
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-1A
Amount distributed…………………………
…
$ 45,000 $ 123,000 $130,000
Preferred dividend (50,000 shares)………
…
(45,000) (105,000) (75,000)
Common dividend (100,000 shares)……… $0 $ 18,000 $ 55,000
*
Year 1 dividends in arrears of $30,000 ($75,000** – $45,000) plus Year 2 dividends of $75,000
**
$75 par × 50,000 shares × 2% = $75,000
PE 13-1B
Amount distributed…………………………
…
$ 35,000 $ 6,300 $ 80,500
Preferred dividend (14,000 shares)………
…
(18,200) (6,300) (30,100)
Common dividend (70,000 shares)………
…
$ 16,800 $0 $ 50,400
PE 13-2A
May 23 Cash (45,000 shares × $16)
Common Stock (45,000 shares × $4)
Paid-In Capital in Excess of Stated Value—
Common Stock [45,000 shares × ($16 – $4
)
)
Year 1 Year 2 Year 3
Year 1 Year 2 Year 3
PRACTICE EXERCISES
180,000
540,000
720,000
*
**
*
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-2B
Jan. 22 Cash 750,000
Common Stock (125,000 shares × $6) 750,000
Feb. 14 Cash 2,560,000
Preferred Stock (32,000 shares × $80) 2,560,000
PE 13-3A
Feb. 28 Cash Dividends 428,000
Cash Dividends Payable 428,000
PE 13-3B
Feb. 1 Cash Dividends 195,000
Cash Dividends Payable 195,000
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-4A
Sept. 2 Stock Dividends (900,000 shares × 3% × $44) 1,188,000
Stock Dividends Distributable
(27,000 shares × $26) 702,000
Paid-In Capital in Excess of Par—
Common Stock [$27,000 shares × ($44 – $26)] 486,000
PE 13-4B
June 8 Stock Dividends (370,000 shares × 5% × $51) 943,500
Stock Dividends Distributable
(18,500 shares × $27) 499,500
Paid-In Capital in Excess of Par—
Common Stock [18,500 shares × ($51 – $27)] 444,000
PE 13-5A
Jan. 31 Treasury Stock (18,700 shares × $45) 841,500
Cash 841,500
Oct. 4 Cash (8,100 shares × $37) 299,700
Paid-In Capital from Sale of
Treasury Stock [8,100 shares × ($45 – $37)] 64,800
Treasury Stock (8,100 shares × $45) 364,500
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-5B
May 27 Treasury Stock (64,000 shares × $12) 768,000
Cash 768,000
Nov. 14 Cash (23,000 shares × $9) 207,000
Paid-In Capital from Sale of Treasury
Stock [23,000 shares × ($12 – $9)] 69,000
Treasury Stock (23,000 shares × $12) 276,000
PE 13-6A
Paid-in capital:
Common stock, $3 par (200,000
shares authorized, 90,000 shares
issued) $ 270,000
Excess over par 1,196,000
PE 13-6B
Paid-in capital:
Common stock, $120 par (500,000
shares authorized, 212,500 shares
issued) $25,500,000
Excess over par 7,230,000
Stockholders’ Equity
Stockholders’ Equity
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-7A
Retained earnings, July 1, 20Y4 $1,700,000
Net income
PE 13-7B
Retained earnings, November 1, 20Y8 $11,775,000
Net income
Seismic Inc.
Retained Earnings Statement
For the Year Ended June 30, 20Y5
Haggen Cruises Inc.
$311,000
Retained Earnings Statement
For the Year Ended October 31, 20Y9
$2,232,000
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13-8A
b. The decrease in the earnings per share from $9.80 to $9.25 indicates an
unfavorable change in the company’s profitability.
PE 13-8B
=$4,243,200 – $64,000
128,000 shares
=$4,179,200 = $32.65
128,000 shares
a. 20Y6: Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
=20Y3: Earnings per Sharea. Avg. Number of Common Shares Outstanding
Net Income – Preferred Dividends
=$775,000 – $35,000
80,000 shares
$9.25= 80,000 shares
$740,000 =
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-1
Amount distributed……………
…
$49,000 $132,000 $146,000 $160,000
Preferred dividend (current)…
…
$49,000 $ 84,000 $ 84,000 $ 84,000
Common dividend………………
…
$— $ 13,000 $ 62,000 $ 76,000
Common shares outstanding…
…
100,000 100,000 100,000
Common dividend per share…
…
$ 0.13 $ 0.62 $ 0.76
Ex. 13-2
Amount distributed……………
…
$36,000 $58,000 $75,000 $124,000
Preferred dividend (current)…
…
$36,000 $44,000 $50,000 $ 50,000
…
*
Pay dividend in arrears first; $44,000 = $58,000 – $14,000
**
$125 par × 40,000 shares × 1% = $50,000; $50,000 − $36,000 = $14,000
…
…
…
EXERCISES
1st Year 2nd Year 3rd Year 4th Year
2nd Year 3rd Year 4th Year1st Year
*
÷÷÷
*
**
…
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-3
a. Oct. 31 Cash (320,000 shares × $12) 3,840,000
Common Stock (320,000 shares × $5) 1,600,000
Paid-In Capital in Excess of Par—Common
Stock [320,000 shares × ($12 – $5)] 2,240,000
b. $7,080,000 ($1,600,000 + $2,240,000 + $2,700,000 + $540,000)
Ex. 13-4
a. Feb. 12 Cash (1,000,000 shares × $1.20) 1,200,000
Common Stock (1,000,000 shares × $0.25) 250,000
Paid-In Capital in Excess of Stated Value—
Common Stock [1,000,000 shares ×
($1.20 – $0.25)] 950,000
b. $1,410,000 ($250,000 + $950,000 + $150,000 + $60,000)
Ex. 13-5
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-6
a. Cash 100,000
Common Stock (100,000 shares × $1) 100,000
c. Land 60,000
Building 225,000
Interest Payable* 5,200
Mortgage Note Payable 180,000
Common Stock (99,800 shares × $1) 99,800
*
An acceptable alternative would be to credit Interest Expense.
Ex. 13-7
Oct. 1 Buildings 2,380,000
Land 840,000
Preferred Stock (35,000 shares × $80) 2,800,000
Paid-In Capital in Excess of Par—Preferred
Stock [35,000 shares × ($92 – $80)] 420,000
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-8
1 Cash 2,860,000
Common Stock (260,000 shares × $11) 2,860,000
1 Organizational Expenses 22,000
Common Stock (2,000 shares × $11) 22,000
20 Cash (30,000 shares × $74) 2,220,000
Preferred Stock (30,000 shares × $70) 2,100,000
Paid-In Capital in Excess of Par—Preferred
Stock [30,000 shares × ($74 – $70)] 120,000
Sept.
July
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-9
12 Cash Dividends 135,000
Cash Dividends Payable 135,000
Ex. 13-10
(2) Stock Dividends Distributable 64,000
Common Stock 64,000
b. (1) $4,000,000 ($3,200,000 + $800,000)
(2)
(3) $29,600,000 ($4,000,000 + $25,600,000)
Ex. 13-11
a. 105,000 shares (35,000 × 3)
b. $90 per share ($270 ÷ 3)
Ex. 13-12
Assets Liabilities
(1) Authorizing and issuing stock
certificates in a stock split 0 0
(2) Declaring a stock dividend 0 0
Jan.
$25,600,000
Stockholders’
Equity
0
0
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-13
Jan. 8 No entry required. The stockholders’ ledger would
be revised to record the increased number of
shares held by each stockholder.
July 1 Cash Dividends Payable 55,500
Cash 55,500
31 Stock Dividends (150,000 shares × 5% ×
$52 = $390,000) 390,000
Stock Dividends Distributable
(7,500 shares × $40) 300,000
Paid-In Capital in Excess of Par—Common Stock
[7,500 shares × ($52 – $40)] 90,000
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-14
a. 11 Treasury Stock (180,000 shares × $17) 3,060,000
Cash 3,060,000
22 Cash (30,000 shares × $15) 450,000
Paid-In Capital from Sale of Treasury
Stock [30,000 shares × ($17 – $15)] 60,000
Treasury Stock (30,000 shares × $17) 510,000
b. $210,000 ($270,000 – $60,000) credit
Ex. 13-15
a. 31 Treasury Stock (42,000 shares × $36) 1,512,000
Cash 1,512,000
14 Cash (19,000 shares × $43) 817,000
Treasury Stock (19,000 shares × $36) 684,000
Paid-In Capital from Sale of Treasury
Stock [19,000 shares × ($43 – $36)] 133,000
b. $181,000 ($133,000 + $48,000) credit
c. $252,000 [(42,000 shares − 19,000 shares − 16,000 shares) × $36]
d. The balance in the treasury stock account is reported as a deduction from the
total of the paid-in capital and retained earnings.
June
Jan.
Aug.
Feb.
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-16
a. 14 Treasury Stock (23,500 shares × $75) 1,762,500
Cash 1,762,500
30 Cash (9,500 shares × $72) 684,000
Paid-In Capital from Sale of Treasury
Stock [9,500 shares × ($75 – $72)] 28,500
Treasury Stock (9,500 shares × $75) 712,500
b. $55,500 ($84,000 – $28,500) credit
c. Stockholders’ Equity section
Nov.
May
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-17
Paid-in capital:
Preferred 2% stock, $110 par
(100,000 shares authorized,
55,000 shares issued) $6,050,000
Excess over par 165,000
Paid-in capital, preferred stock $6,215,000
Ex. 13-18
Paid-in capital:
Common stock, $45 par
(80,000 shares authorized,
68,000 shares issued) $3,060,000
Excess over par 272,000
Stockholders’ Equity
Stockholders’ Equity
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-19
Paid-in capital:
Preferred 1% stock, $150 par
(50,000 shares authorized,
48,000 shares issued) $ 7,200,000
Excess over par 384,000
Paid-in capital, preferred stock $ 7,584,000
Common stock, $36 par
Ex. 13-20
Retained earnings, February 1, 20Y1 $29,842,000
Net income $ 4,082,000
Stockholders’ Equity
Pressure Pumps Corporation
Retained Earnings Statement
For the Year Ended January 31, 20Y2
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-21
a. 1. Retained earnings is not part of paid-in capital.
2. The cost of treasury stock should be deducted from the total stockholders’
equity.
3. Dividends payable should be included as part of current liabilities and not
as part of stockholders’ equity.
b. A corrected Stockholders’ Equity section of the balance sheet using Method 1 of
Exhibit 8 is as follows:
Paid-in capital:
Preferred 2% stock, $60 par
(94,000 shares authorized
and issued) $5,640,000
Excess over par 375,000
Paid-in capital, preferred stock $6,015,000
Common stock, $10 par (750,000
shares authorized, 619,000
Stockholders’ Equity
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Ex. 13-22
Paid-In
Common Capital
Stock, in Excess Retained
$40 par of Par Earnings
Balance, Jan. 1, 20Y9 $4,800,000 $ 960,000 $11,375,000
as treasury stock
Net income 3,780,000
Dividends (276,000)
Balance, Dec. 31, 20Y9 $6,000,000 $1,260,000 $14,879,000
Ex. 13-23
$17,135,000
I-Cards Inc.
Statement of Stockholders’ Equity
For the Year Ended December 31, 20Y9
Total
(276,000)
(552,000)
3,780,000
$21,587,000
Treasury
Stock
$(552,000)
$(552,000)
—