E13-21, cont.
Requirement 2
E13-22 Journalizing issuance of stock and preparing the stockholders’ equity section of the
balance sheet
Learning Objective 2
March 23 Common Stock $210 CR
The charter of Cherry Blossom Corporation authorizes the issuance of 900 shares of preferred stock and
3,500 shares of common stock. During a two-month period, Cherry Blossom completed these stock-
issuance transactions:
Requirements
1. Record the transactions in the general journal.
WCAP-TV, Inc.
Balance Sheet (Partial)
September 30, 2016
Stockholders’ Equity
Paid-In Capital:
Preferred Stock, $2, no-par; 100,000 shares authorized, 300 shares
issued and outstanding
$ 24,000
Total Paid-In Capital
Retained Earnings
$ 88,250
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Mar. 23
Cash ($10 per share × 210 shares)
2,100
Common Stock—$1 Par Value ($1 per share × 210 shares)
210
Paid-In Capital in Excess of Par—Common ($2,100 – $210)
1,890
Issued common stock for cash.
Inventory
Equipment
Common Stock—$1 Par Value ($1 per share × 350 shares)
350
Issued common stock for inventory and equipment.
17
Cash ($50 per share × 900 shares)
Preferred Stock—$50 Par Value
Issued preferred stock for cash.
Requirement 2
Total Paid-In Capital
Paid-In Capital:
Preferred Stock, 6%, $50 par value; 900 shares authorized, issued
E13-23 Journalizing treasury stock transactions and reporting stockholders’ equity
Learning Objective 3
2. Total Stockholders’ Equity $53,500
Pioneer Amusements Corporation had the following stockholders’ equity on November 30:
On December 30, Pioneer purchased 100 shares of treasury stock at $11 per share.
Requirements
1. Journalize the purchase of the treasury stock.
2. Prepare the stockholders’ equity section of the balance sheet at December 31, 2016. Assume the
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
E13-23, cont.
Requirement 2
Total Paid-In Capital
Requirement 3
There are 30 shares outstanding after the purchase of the treasury stock (130 shares − 100 shares).
E13-24 Journalizing issuance of stock and treasury stock transactions
Learning Objectives 2, 3
Sept. 22 Treasury Stock $3,300 CR
Stock transactions for Cautious Driving School, Inc. follow:
PIONEER AMUSEMENTS CORPORATION
Balance Sheet (Partial)
December 31, 2016
Stockholders’ Equity
Paid-In Capital:
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Mar. 4
Cash ($8 per share × 29,000 shares)
232,000
Common Stock ($1 per share × 29,000 shares)
29,000
Paid-In Capital in Excess of Par—Common ($232,000 − $29,000)
203,000
Issued common stock for cash.
May 22
9,900
Cash
9,900
Purchased treasury stock.
Sep. 22
Cash ($25 per share × 300 shares)
7,500
Treasury Stock—Common ($11 cost per share × 300 shares)
3,300
Paid-In Capital from Treasury Stock Transactions ($14 × 300 shares)
4,200
Sold treasury stock with cost of $11 per share.
Oct. 14
Cash ($6 per share × 600 shares)
3,600
Paid-In Capital from Treasury Stock Transactions ($5 × 600 shares)
3,000
Treasury Stock—Common ($11 cost per share × 600 shares)
6,600
Sold treasury stock with cost of $11 per share.
E13-25 Computing dividends on preferred and common stock and journalizing
Learning Objective 4
1. Preferred Dividend 2016 $7,680
Horizon Communications has the following stockholders’ equity on December 31, 2016:
Requirements
1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred
stockholders and to common stockholders for 2016 and 2017 if total dividends are $7,680 in 2016
and $49,000 in 2017. Assume no changes in preferred stock and common stock in 2017.
2. Record the journal entries for 2016, assuming that Horizon Communications declared the dividend
on December 1 for stockholders of record on December 10. Horizon Communications paid the
dividend on December 20.
SOLUTION
Requirement 1
Total Dividend—2016
$ 7,680
Dividend to Preferred Stockholders
4% × $11 × 22,000 shares
$ 9,680
Dividend to Common Stockholders
Total Dividend—2017
Dividend to Preferred Stockholders
Dividend to Common Stockholders
E13-25, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
2016
Dec. 1
Cash Dividends
7,680
Dividends Payable—Preferred
7,680
7,680
7,680
E13-26 Computing dividends on preferred and common stock and journalizing
Learning Objective 4
2. July 1 Cash Dividends $155,000 DR
The following elements of stockholders’ equity are from the balance sheet of Sacchetti Marketing Corp.
at December 31, 2015:
Sacchetti paid no preferred dividends in 2015.
Requirements
1. Compute the dividends to the preferred and common shareholders for 2016 if total dividends are
$155,000 and assuming the preferred stock is noncumulative.
2. Record the journal entries for 2016 assuming that Sacchetti Marketing Corp. declared the dividends
on July 1 for stockholders of record on July 15. Sacchetti paid the dividends on July 31.
SOLUTION
Requirement 1
Total Dividend—2016
$ 155,000
$ 150,500
Requirement 2
Date
Accounts and Explanation
Debit
Credit
2016
July 1
Cash Dividends
155,000
Dividends Payable—Preferred
4,500
Dividends Payable—Common
150,500
4,500
150,500
155,000
E13-27 Journalizing a stock dividend and reporting stockholders’ equity
Learning Objective 4
2. Total Stockholders’ Equity $127,600
The stockholders’ equity of Poolside Occupational Therapy, Inc. on December 31, 2015, follows:
On April 30, 2016, the market price of Poolside’s common stock was $15 per share and the company
declared a 8% stock dividend. The stock was distributed on May 15.
Requirements
1. Journalize the declaration and distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet as of May 31, 2015. Assume Retained
Earnings are $124,000 on April 30, 2016, before the stock dividend, and the only change made to
Retained Earnings before preparing the balance sheet was closing the Stock Dividends account.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Apr. 30
Stock Dividends ($15 per share × 600 × 0.08)
720
Common Stock Dividend Distributable ($2 per share × 600 × 0.08)
96
624
May 15
Common Stock Dividend Distributable
96
96
E13-27, cont.
Requirement 2
E13-28 Journalizing cash and stock dividends
Learning Objective 4
1. Common Stock $15,200 CR
Pottery Schools, Inc. is authorized to issue 200,000 shares of $2 par common stock. The company issued
76,000 shares at $4 per share. When the market price of common stock was $6 per share, Pottery
declared and distributed a 10% stock dividend. Later, Pottery declared and paid a $0.10 per share cash
dividend.
Requirements
1. Journalize the declaration and the distribution of the stock dividend.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Stock Dividends ($6 per share × 76,000 shares × 0.10)
45,600
15,200
30,400
Common Stock Dividend Distributable
15,200
15,200
Common Stock Dividend Distributable ($2 per share × 76,000
POOLSIDE OCCUPATIONAL THERAPY, INC.
Balance Sheet (Partial)
May 31, 2016
Stockholders’ Equity
Paid-In Capital:
Total Paid-In Capital
Total Stockholders’ Equity
Common Stock—$2 Par Value; 1,600 shares authorized, 648 shares
E13-28, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Cash Dividends ($0.10 × (76,000 shares + 7,600 shares ))
8,360
8,360
8,360
8,360
E13-29 Reporting stockholders’ equity after a stock split
Learning Objective 4
Total Stockholders’ Equity $4,120
Tour Golf Club Corp. had the following stockholders’ equity at December 31, 2015:
On June 30, 2016, Tour split its common stock 2-for-1. Prepare the stockholders’ equity section of the
balance sheet immediately after the split. Assume the balance in retained earnings is unchanged from
December 31, 2015.
SOLUTION
TOUR GOLF CLUB, CORP.
Balance Sheet (Partial)
June 30, 2106
E13-30 Determining the effects of cash dividends, stock dividends, and stock splits
Learning Objective 4
Complete the following chart by inserting a check mark (?) for each statement that is true.
SOLUTION
Cash dividend
Stock dividend
Stock split
Decreases retained earnings
√
√
Has no effect on a liability
√
√
E13-31 Determining the effect of stock dividends, stock splits, and treasury stock transactions
Learning Objectives 3, 4
Many types of transactions may affect stockholders’ equity. Identify the effects of the following
transactions on total stockholders’ equity. Each transaction is independent.
a. A 10% stock dividend. Before the dividend, 560,000 shares of $1 par value common stock were
outstanding; market value was $10 per share at the time of the dividend.
b. A 2-for-1 stock split. Prior to the split, 65,000 shares of $1 par value common stock were
outstanding.
c. Purchase of 1,500 shares of $0.50 par treasury stock at $7 per share.
d. Sale of 900 shares of $0.50 par treasury stock for $9 per share. Cost of the treasury stock was $8 per
share.
SOLUTION
a.
No effect (increases Paid-In Capital, but decreases Retained Earnings)
No effect
c.
E13-32 Preparing a statement of retained earnings
Learning Objective 5
Retained Earnings Dec. 31, 2016 $97,000
Susan May Bakery, Inc. reported a prior-period adjustment in 2016. An accounting error caused net
income of prior years to be overstated by $4,000. Retained Earnings at December 31, 2015, as
previously reported, was $42,000. Net income for 2016 was $79,000, and dividends declared were
$20,000. Prepare the company’s statement of retained earnings for the year ended December 31, 2016.
SOLUTION
SUSAN MAY BAKERY, INC.
Statement of Retained Earnings
Retained Earnings, January 1, 2016, as originally reported
Prior Period Adjustment
Retained Earnings, January 1, 2016, as adjusted
Net income for the year
Dividends Declared
Retained Earnings, December 31, 2016
E13-33 Computing earnings per share and price/earnings ratio
Learning Objective 6
Temple Corp. earned net income of $128,500 and paid the minimum dividend to preferred stockholders
for 2016. Assume that there are no changes in common shares outstanding. Temple’s books include the
following figures:
Requirements
1. Compute Temple’s EPS for the year.
2. Assume Temple’s market price of a share of common stock is $8 per share. Compute Temple’s
price/earnings ratio.
SOLUTION
Requirement 1
Earnings per
share
=
(Net income − Preferred
dividends)
/
Average number of common shares
outstanding
Requirement 2
Price/earnings
ratio
=
Market price per share of common stock
/
Earnings per share
$3.20 per share
E13-34 Computing rate of return on common stockholders’ equity
Learning Objective 6
Louisville Exploration Company reported these figures for 2016 and 2015:
Compute rate of return on common stockholders’ equity for 2016 assuming no dividends were paid to
preferred stockholders.
SOLUTION
Rate of
return on
common
stockholders’
equity
=
(Net income − Preferred
dividends)
/
Average common stockholders’
equity = Total equity – preferred
equity
Problems (Group A)
P13-35A Organizing a corporation and issuing stock
Learning Objectives 1, 2
John and Michael are opening a paint store. There are no competing paint stores in the area. They must
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
2. Would you recommend they initially issue preferred or common stock? Why?
3. If they decide to issue $10 par common stock and anticipate an initial market price of $40 per share,
how many shares will they need to issue to raise $2,250,000?
SOLUTION
Requirement 1
Students’ answers may vary. The following are advantages of the corporate form of business. A
corporation:
a. Does not hold individual stockholders personally liable for the debts of the corporation
e. Makes transfer of ownership easy
Requirement 2
Requirement 3
P13-36A Identifying sources of equity, stock issuance, and dividends
Learning Objectives 1, 2, 4
4. Common stock dividends $840,000
Travel Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June
30, 2016:
Requirements
1. Identify the different classes of stock that Travel has outstanding.
2. What is the par value per share of Travel’s preferred stock?
3. Make two summary journal entries to record issuance of all the Travel stock for cash. Explanations
are not required.
SOLUTION
Requirement 1
Requirement 2
P13-36A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Cash
1,000,000
1,000,000
Cash
4,020,000
1,320,000
2,700,000
Requirement 4
Total Dividend—2016
$ 900,000
Dividend to Preferred Stockholders
$ 60,000
Dividend to Common Stockholders
$ 840,000
Date
Accounts and Explanation
Debit
Credit
2016
June 30
Cash Dividends
900,000
Dividends Payable—Preferred
60,000
Dividends Payable—Common
840,000
July 20
60,000
840,000
900,000
P13-37A Journalizing stock issuance and cash dividends and preparing the stockholders’ equity
section of the balance sheet
Learning Objectives 2, 4
2. Total Stockholders’ Equity $323,000
C-C ell Wireless needed additional capital to expand, so the business incorporated. The charter from the
state of Georgia authorizes C-Cell to issue 50,000 shares of 7%, $50 par value cumulative preferred
stock and 120,000 shares of $2 par value common stock. During the first month, C-Cell completed the
following transactions:
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of C–Cell’s balance sheet at October 31, 2016. Assume C–
Cell’s net income for the month was $96,000.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Oct. 2
Building
120,000
Common Stock—$2 Par Value ($2 per share × 22,000 shares)
44,000
76,000
Cash ($70 per share × 900 shares)
63,000
Preferred Stock—$50 Par Value ($50 per share × 900 shares)
45,000
Paid-In Capital in Excess of Par—Preferred ($63,000 − $45,000)
18,000
Cash
60,000
Common Stock—$2 Par Value ($2 per share × 12,000 shares)
24,000
Paid-In Capital in Excess of Par—Common ($60,000 – $24,000)
36,000
Cash Dividends
16,000
Dividends Payable—Preferred
Dividends Payable—Common
12,850
12,850
16,000
*Total Dividend
$ 16,000
Dividend to Preferred Stockholders
7% × $50 × 900 shares
$ 3,150
(3,150)
Dividend to Common Stockholders
$ 12,850