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CHAPTER 13
Corporations: Organization and
Capital Stock Transactions
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
1. Discuss the major
characteristics of a
corporation.
1, 2, 3, 4, 5, 6,
8, 9, 11, 15
1, 2
1a, 1b
1, 2
3A, 4A
2. Explain how to account for
the issuance of common and
preferred stock.
7, 10, 11, 12,
16
3, 4, 5, 6
2
3, 4, 5, 6, 9,
10, 12
1A, 3A, 4A,
6A
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize stock transactions, post, and prepare
paid-in capital section.
Simple
30–40
2A
Journalize and post treasury stock transactions,
and prepare stockholders’ equity section.
Moderate
30–40
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 13
CORPORATIONS: ORGANIZATION AND CAPITAL STOCK
TRANSACTIONS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
K
Simple
4–6
BE2
1
AP
Simple
1–2
BE3
2
AP
Simple
2–3
DI1b
1
AP
Simple
4–6
DI2
2
AP
Simple
4–6
DI3
3
AP
Simple
4–6
DI4
4
AP
Simple
6–8
EX1
1
K
Simple
6–8
EX2
1
K
Simple
6–8
EX3
2
AP
Simple
6–8
EX4
2
AP
Simple
8–10
EX5
2, 3
AP
Simple
6–8
EX6
2
AP
Simple
4–6
EX7
3
AP
Simple
8–10
EX8
3
AP
Simple
8–10
CORPORATIONS: ORGANIZATION AND CAPITAL STOCK
TRANSACTIONS (Continued)
Number
LO
BT
Difficulty
Time (min.)
P1A
2, 4
AP
Simple
30–40
P2A
3, 4
AP
Moderate
30–40
P3A
1–4
AP
Complex
40–50
BYP1
4
AP
Simple
10–15
BYP2
4
AP
Simple
10–15
BYP3
4
AP
Simple
10–15
BYP4
1
C
Simple
8–12
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Discuss the major
characteristics of a
corporation.
Q13-4
Q13-5
BE13-1
DI13-1a
E13-1
E13-2
Q13-1 Q13-9
Q13-2 Q13-11
Q13-3 Q13-15
Q13-6
Q13-8
BE13-2
DI13-1b
P13-3A
P13-4A
3. Explain how to account for
treasury stock.
Q13-13
Q13-14
Q13-15
Q13-17
Q13-7
BE13-7
DI13-3
E13-5
E13-7
E13-8
E13-10
P13-2A
P13-3A
P13-6A
E13-12
Broadening Your Perspective
Decision Making
Across the
Organization
Real-World Focus
Financial Reporting
Comparative Analysis
FASB Codification
Communication
All About You
Ethics Case
ANSWERS TO QUESTIONS
1. (a) Separate legal existence. A corporation is separate and distinct from its owners and it acts
in its own name rather than in the name of its stockholders. In contrast to a partnership, the
acts of the owners (stockholders) do not bind the corporation unless the owners are agents
of the corporation.
(b) Limited liability of stockholders. Because of its separate legal existence, creditors of a corpora-
tion ordinarily have recourse only to corporate assets to satisfy their claims. Thus, the liability
of stockholders is normally limited to their investment in the corporation.
(c) Transferable ownership rights. Ownership of a corporation is shown in shares of capital stock.
The shares are transferable units. Stockholders may dispose of part or all of their interest by
simply selling their stock. The transfer of ownership to another party is entirely at the discretion
of the stockholder.
3. (a) (1) A charter is a document that creates a corporation. A charter is also referred to as the
articles of incorporation.
(2) The by-laws are the internal rules and procedures for conducting the affairs of a
corporation. They also indicate the powers of the stockholders, directors, and officers of
the corporation.
4. In the absence of restrictive provisions, the basic ownership rights of common stockholders are
the rights to:
(a) vote in the election of board of directors and in corporate actions that require stockholders’
approval.
5. (a) The two principal components of stockholders’ equity for a corporation are paid-in capital
(the investment of cash and other assets in the corporation by stockholders in exchange for
capital stock) and retained earnings. The principal source of retained earnings is net
income.
Questions Chapter 13 (Continued)
6. Each of the three basic financial statements for a corporation differs from those for a proprietorship.
The income statement for a corporation will have income tax expense. For a corporation, a retained
earnings statement is prepared to show the changes in retained earnings during the period. In
the balance sheet, the owner’s equity section is called the stockholders’ equity section.
7. The maximum number of shares that a corporation is legally allowed to issue is the number
authorized. Luney Corporation is authorized to sell 100,000 shares. Of these shares, 70,000 shares
have been issued. Outstanding shares are those issued shares which have not been reacquired
by the corporation; in other words, issued shares less treasury shares. Luney has 63,000 shares
outstanding (70,000 issued less 7,000 treasury).
10. The issuance of stock does not have any effect on the issuer’s net income. If stock is issued at a
price above par, the excess is credited to a stockholders’ equity account, Paid-in Capital in Excess
of Par. This excess is part of the company’s paid-in capital.
11. The sale of common stock below par value is not permitted in most states.
12. When stock is issued for services or noncash assets, the cost should be measured at either
the fair value of the consideration given up (in this case, the stock) or the fair value of the
consideration received (in this case, the land), whichever is more clearly evident. In this case, the
fair value of the stock is more objectively determinable than that of the land, since the stock is
actively traded in the securities market. The appraised value of the land is merely an estimate of
the land’s value, while the market price of the stock is the amount the stock was actually worth on
the date of exchange. Therefore, the land should be recorded at $95,000, the common stock at
$20,000, and the excess ($75,000) as paid-in capital in excess of par.
Questions Chapter 13 (Continued)
15. When treasury stock is resold at a price above original cost, Cash is debited for the amount of the
proceeds ($16,000), Treasury Stock is credited at cost ($12,000), and the excess ($4,000) is
credited to Paid-in Capital from Treasury Stock. Cash is an asset, and the other two accounts are
part of stockholders’ equity. Therefore, this transaction: (a) has no effect on net income, (b) increases
total assets, (c) increases total paid-in capital, and (d) increases total stockholders’ equity.
17. The answers are summarized in the table below:
Account
Classification
(a)
(b)
Common Stock
Paid-in Capital in Excess of Par—
Common Stock
Paid-in capital—capital stock
Paid-in capital—additional paid-in capital
18. Apple had 899 million outstanding shares at September 28, 2013 and 939 million shares at
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 13-1
The advantages and disadvantages of a corporation are as follows:
Advantages
Disadvantages
Separate legal existence
Limited liability of stockholders
Corporation management—
separation of ownership
BRIEF EXERCISE 13-2
Dec. 31 Income Summary ......................................... 480,000
Retained Earnings ................................ 480,000
BRIEF EXERCISE 13-3
BRIEF EXERCISE 13-4
June 1 Cash (4,000 X $6).......................................... 24,000
Common Stock (4,000 X $1) ................. 4,000
BRIEF EXERCISE 13-5
Land (5,000 X $15) ......................................................... 75,000
Common Stock (5,000 X $10) ................................ 50,000
BRIEF EXERCISE 13-6
Cash (5,000 X $130) ....................................................... 650,000
BRIEF EXERCISE 13-7
July 1 Treasury Stock (500 X $9)............................. 4,500
Cash ....................................................... 4,500
BRIEF EXERCISE 13-8
Stockholders’ equity
Paid-in capital
Capital stock
Common stock, $10 par value, 5,000 shares
issued and 4,500 shares outstanding ..................... $ 50,000
Additional paid-in capital
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 13-1a
1. True.
2. True.
DO IT! 13-1b
(a) Income Summary ................................................. 236,000
Retained Earnings ........................................ 236,000
(To close Income Summary and transfer
net income to retained earnings)
DO IT! 13-2
Apr. 1 Cash ............................................................... 780,000
Common Stock ...................................... 300,000
Paid-in Capital in Excess of Par—
Apr. 19 Organization Expense ................................. 27,500
DO IT! 13-2 (Continued)
Cash ............................................................... 6,000
DO IT! 13-3
Aug. 1 Treasury Stock ............................................... 130,000
Cash ......................................................... 130,000
Dec. 1 Cash ................................................................. 86,400
Treasury Stock ........................................ 78,000
DO IT! 13-4
ANDERS CORPORATION
Balance Sheet (partial)
Stockholders’ equity
Paid-in capital
Capital stock
7% preferred stock, $100 par value,
10,000 shares authorized, 2,000
shares issued and outstanding ............. $ 200,000
Common stock, $5 par value, 500,000
SOLUTIONS TO EXERCISES
EXERCISE 13-1
1. True.
2. True.
7. False. The transfer of stock from one owner to another does not require
the approval of either the corporation or other stockholders; it is entirely
at the discretion of the stockholder.
EXERCISE 13-2
1. True.
2. False. Corporation management (separation of ownership and manage-
ment), government regulations, and additional taxes are the major
disadvantages of a corporation.
EXERCISE 13-2 (Continued)
8. True.
EXERCISE 13-3
(a) Jan. 10 Cash (70,000 X $5) .................................. 350,000
Common Stock ................................ 350,000
(b) Jan. 10 Cash (70,000 X $5) .................................. 350,000
Common Stock (70,000 X $1) ......... 70,000
Paid-in Capital in Excess of
Stated Value—Common Stock
(70,000 X $4) ................................ 280,000
EXERCISE 13-4
(a) Cash .......................................................................... 52,000
Common Stock (2,000 X $5) ............................. 10,000
EXERCISE 13-4 (Continued)
(b) Cash ...................................................................... 52,000
Common Stock (2,000 X $5) ......................... 10,000
(c) Cash ...................................................................... 52,000
Common Stock.............................................. 52,000
(d) Organization Expense ......................................... 52,000
Common Stock (2,000 X $5) ......................... 10,000
EXERCISE 13-5
Mar. 2 Organization Expense .................................. 30,000
Common Stock (5,000 X $5) .................. 25,000
Paid-in Capital in Excess of Par—
Common Stock .................................. 5,000
June 12 Cash ............................................................... 375,000
EXERCISE 13-6
1. Land ........................................................................ 110,000
Common Stock (5,000 X $20) ........................ 100,000
Paid-in Capital in Excess of Par—
Common Stock ........................................... 10,000
EXERCISE 13-7
(a) Mar. 1 Treasury Stock (50,000 X $15) .............. 750,000
Cash ................................................ 750,000
July 1 Cash (10,000 X $17) ............................... 170,000
Treasury Stock (10,000 X $15) ...... 150,000
Paid-in Capital from Treasury
Stock (10,000 X $2) .................... 20,000
EXERCISE 13-8
Treasury Stock .......................................................... 255,000
Cash .................................................................... 255,000
Cash (2,000 X $54) ..................................................... 108,000
Treasury Stock (2,000 X $51) ............................ 102,000
Paid-in Capital from Treasury Stock ................ 6,000
EXERCISE 13-9
(a) Feb. 1 Cash (20,000 X $53) ............................ 1,060,000
Preferred Stock (20,000 X $50) ... 1,000,000
Paid-in Capital in Excess
of Par—Preferred
Stock (20,000 X $3) .................. 60,000
EXERCISE 13-9 (Continued)
(b)
Preferred Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Feb. 1
July 1
1,000,000
600,000
1,000,000
1,600,000
EXERCISE 13-10
May 2 Cash (10,000 X $13) ....................................... 130,000
Common Stock (10,000 X $10) .............. 100,000
Paid-in Capital in Excess of Par—
Common Stock (10,000 X $3) ............ 30,000
EXERCISE 13-11
EUDALEY CORPORATION
Partial Balance Sheet
December 31, 2017
Stockholders’ equity
Paid-in capital
Capital stock
8% Preferred stock, $100 par
value, 5,000
shares issued ........................... $ 500,000
Additional paid-in capital
In excess of par—
preferred stock ......................... $280,000
Retained earnings ...................................... 1,234,000
Total paid-in capital and
