Problem 11-4B (45 minutes)
Part 1
Outstanding common shares
Feb. 15
May 15
Aug. 15
Nov. 15
Beginning balance ………………………
Part 2
Cash dividend amounts
Feb. 15
May 15
Aug. 15
Nov. 15
Dividend per share ………………………
Part 3
Capitalization of retained earnings for small stock dividend
Number of shares ……………………………………………………….
Market value per share ……………………………………………………….
Part 4
Cost per share of treasury stock
Total amount paid ……………………………………………………….
$ 40,000
Shares purchased ……………………………………………………….
Part 5
Net income
Retained earnings, beginning balance …………………………..
$270,000
Problem 11-5B (40 minutes)
2. Computation of stock par values
3. Book values with no dividends in arrears
Book value per preferred share = par value (when not callable)
= $ 250
Common stock
Total equity…………………………..……………
Less equity for preferred ……………………
Common stock equity ………………………..
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value …………………..
$ 375,000
Plus two years’ dividends in arrears* ….
60,000
Preferred equity …………………………………
$ 435,000
Total equity…………………………..……………
Less equity for preferred ……………………
Common stock equity ………………………..
Problem 11-5B (Concluded)
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,500 x $280)
$ 420,000
Plus two years’ dividends in arrears* ……….
60,000
Preferred equity ………………………………………
$ 480,000
Book value per preferred share ……………….
$ 320.00
Common stock
Total equity…………………………..…………………
Less equity for preferred …………………………
(480,000)
Common stock equity ……………………………..
Book value per common share ………………..
$ 106.67
6. Dividend allocation in total
Preferred
Common
Total
2 years’ dividends in arrears …
$ 60,000
$ 0
$ 60,000
Current year dividends ………….
30,000
—
30,000
7. Equity represents the residual interest of owners in the assets of the
business after subtracting claims of creditors. With few exceptions, these
SERIAL PROBLEM — SP 11
Serial Problem — SP 11 (25 minutes)
1a. Journal entry for issuance of common stock to Cicely
1b. Journal entry for issuance of preferred stock to Marcello
1c. Journal entry to record $86,000 borrowed from the bank
2. Evaluation of the three proposals
a. Cicely’s investment as a common shareholder would mean that
Santana would have a second person who would be an owner.
Santana has been working on her own for about 15 months, and
Serial Problem (concluded)
b. Having a preferred shareholder means that Santana’s Uncle
Marcello will not have the same voting rights as Santana. Marcello
c. The loan requires regular monthly payments, so Santana will need
to budget the $1,000 each month as a cash outflow. The loan may
3. There is no correct answer to the question of which proposal Santana
Reporting in Action — BTN 11–1
(All shares in thousands.)
1. As of September 27, 2014, the shares of common stock issued and
outstanding are 5,866,161 (see balance sheet). As of September 28,
2013, the number of shares of common stock issued and outstanding is
6,294,494.
2. Total stockholders’ equity as of September 27, 2014 ……$111,547,000,000
3. As found on its statement of cash flows, Apple reported $11,126 million
4. Apple’s income statement reports the following
Fiscal years 2014
2013
2012
Comparative Analysis — BTN 11-2
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share = Net income
Weighted-average common shares outstanding
3. Dividend yield = Annual cash dividends per share
Market value per share
4. Price-earnings ratio = Market value per share
Earnings per share
Ethics Challenge — BTN 11-3
During the course of her duties, Harriet has learned information that others
might not know. If she uses this information to trade in New World
Communicating in Practice — BTN 11-4
There is no set solution to this activity. Solutions will vary based on the
industry and the companies selected.
Taking It to the Net — BTN 11-5
1. The balance sheet of McDonald’s shows that they have both preferred
and common stock authorized, but it has only issued common stock.
Teamwork in Action — BTN 11–6
1. The team statement should include the following:
a. When a corporation “buys back” its stock (engages in a treasury
stock acquisition), the effect on financial position is a decrease in
2. The team should establish the acquisition entry as follows
Treasury Stock, Common …………………………………..
13,400
a.
Cash ………………………………………………………………………………
13,400
b.
Cash ………………………………………………………………………………
15,000
c.
Cash ………………………………………………………………………………
12,000
Teamwork in Action (Continued)
d.
Cash ………………………………………………………………………………
12,000
Paid-In Capital, Treasury Stock …………………………..
1,000
Retained Earnings ……………………………………………………….
Cash ………………………………………………………………………………
12,000
Retained Earnings ……………………………………………………….
1,400
3. When presenting and explaining the above entries to the team, the
following points should be made by the team members:
The similarities in all reissue entries a through e are:
• The net affect of the transaction is to increase assets and equity by
the amount received on reissue.
The differences in reissue entries b through e are:
(b) Reissuing above cost creates additional Paid-In Capital.*
Entrepreneurial Decision — BTN 11-7
1.
Plan A
Plan B
Net income ……………………………………………………..
$ 72,000
$ 72,000
Less preferred dividends ………………………………..
(10,000)
Net income for common stockholders …………….
$ 72,000
$ 62,000
$375,000
$375,000
2.
Plan A
Plan B
Net income ……………………………………………………..
$ 16,800
$ 16,800
Less preferred dividends ………………………………..
0
(10,000)
Net income for common stockholders …………….
$ 16,800
$375,000
$375,000
3. The difference between the answers for parts 1 and 2 arises from the
percent of return generated with the assets invested in the corporation.
Hitting the Road — BTN 11-8
There is no formal solution for this field activity. Students often find this
Global Decision — BTN 11-9
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share:
= (Net income – Preferred dividends) / Weighted-average common shares outstanding
3. Samsung’s EPS is ₩153,105, and Samsung declared ₩20,000 in cash