EXERCISE 15-6 (25–30 minutes)
(a) Cash [(5,000 X $45) – $7,000] ……………………………… 218,000
Common Stock (5,000 X $5) ………………………… 25,000
Paid-in Capital in Excess of Par—
Common Stock …………………………..……………. 193,000
(b) Land (1,000 X $46) …………………………………………….. 46,000
(c) Treasury Stock (500 X $43) ………………………………… 21,500
Cash …………………………..……………………………… 21,500
EXERCISE 15-7 (15–20 minutes)
#
Assets
Liabilities
Stockholders’
Equity
Paid-in
Capital
Retained
Earnings
Net
Income
1
D
NE
NE
NE
3
I
NE
I
D
NE
NE
EXERCISE 15-8 (15–20 minutes)
(a) $1,000,000 X 8% = $80,000; $80,000 X 3 = $240,000. The cumulative
dividend is disclosed in a note to the stockholders’ equity section; it is
not reported as a liability.
(b) Preferred Stock (4,000 X $100)…………………………. 400,000
(c) Paid-in capital
Preferred stock, $100 par 8%, 10,000 shares issued $1,000,000
Paid-in capital in excess of par (10,000 X $7) 70,000
EXERCISE 15-9 (15–20 minutes)
May 2 Cash ……………………………………………………… 192,000
Common Stock (12,000 X $5) …………… 60,000
Paid-in Capital in Excess of Par—
Common Stock (12,000 X $11) ……… 132,000
10 Cash ……………………………………………………… 600,000
15 Treasury Stock ………………………………………. 15,000
Cash ………………………………………………. 15,000
EXERCISE 15-10 (20–25 minutes)
(a) (1) The par value is $2.50. This amount is obtained from either of the
following: 2014—$545 ÷ 218 or 2013—$540 ÷ 216.
(b) Stockholders’ equity (in millions of dollars)
Paid-in capital
Common stock, $2.50 par value, 500,000,000
EXERCISE 15-11 (15–20 minutes)
Item
Assets
Liabilities
Stockholders’
Equity
Paid-in
Capital
Retained
Earnings
Net
Income
1.
I
NE
I
NE
I
I
2.
NE
I
D
NE
D
NE
3.
NE
NE
NE
NE
4.
NE
NE
NE
NE
5.
NE
D
NE
D
6.
NE
NE
7.
NE
I
D
NE
D
8.
NE
NE
D
NE
9.
NE
NE
NE
NE
EXERCISE 15-12 (10–15 minutes)
(a)
6/1
Retained Earnings …………………………..
8,000,000
Dividends Payable …………………………..
8,000,000
6/14
No entry on date of record.
6/30
Dividends Payable …………………………..
8,000,000
Cash ……………………………………………………….
8,000,000
EXERCISE 15-13 (10–15 minutes)
(a) No entry—simply a memorandum note indicating the number of shares
has increased to 18 million and par value has been reduced from
$10 to $5 per share.
(b)
Retained Earnings ($10 X 9,000,000) ………………………..
Common Stock Dividend Distributable ………………..
(c) Stock dividends and splits serve the same function with regard to the
securities markets. Both techniques allow the board of directors to
increase the quantity of shares and reduce share prices into a desired
“trading range.”
EXERCISE 15-14 (10–12 minutes)
(a)
Retained Earnings (15,000 X $37) …………………………..
555,000
Common Stock Dividend Distributable …………………
150,000
Paid-in Capital in Excess of Par—
Common Stock ………………………………………………..
405,000
Common Stock Dividend Distributable …………………….
Common Stock …………………………………………………..
(b)
Retained Earnings (300,000 X $10) …………………………..
Common Stock Dividend Distributable …………………
Common Stock Dividend Distributable …………………….
Common Stock …………………………………………………..
EXERCISE 15-15 (10–15 minutes)
(a)
Retained Earnings ………………………………………………….
97,500
Common Stock Dividend Distributable …………….
25,000
Paid-in Capital in Excess of Par—
Common Stock…………………………………………….
72,500
(50,000 shares X 5% X $39 = $97,500)
Common Stock Dividend Distributable …………………….
Common Stock ………………………………………………
25,000
(b) No entry, memorandum note to indicate that par value is reduced to
$2 and shares outstanding are now 250,000 (50,000 X 5).
(c)
January 5, 2014
Debt Investments ……………………………………………………
35,000
Unrealized Holding Gain or Loss—
Income ……………………………………………………….
35,000
Retained Earnings ………………………………………………….
Property Dividends Payable …………………………..
Property Dividends Payable …………………………..
135,000
Debt Investments ……………………………………………
EXERCISE 15-16 (5–10 minutes)
Total income since incorporation
$317,000
Less: Total cash dividends paid
$60,000
90,000
Current balance of retained earnings
$227,000
EXERCISE 15-17 (20–25 minutes)
BRUNO CORPORATION
Stockholders’ Equity
December 31, 2014
Capital stock
Preferred stock, $4 cumulative, par value $50
per share; authorized 60,000 shares, issued
and outstanding 10,000 shares
$ 500,000
Common stock, par value $1 per share;
authorized 600,000 shares, issued 200,000
shares, and outstanding 190,000 shares
200,000
Total capital stock
Additional paid-in capital—
In excess of par—common
From sale of treasury stock
160,000
Total paid-in capital
Retained earnings
301,000
Total paid-in capital and retained earnings
Less: Treasury stock, 10,000 shares at cost
170,000
EXERCISE 15-18 (30–35 minutes)
(a)
1.
Dividends Payable—Preferred (2,000 X $10) ………………….
20,000
Dividends Payable—Common (20,000 X $2) ………………….
40,000
Cash …………………………..…………………………..
60,000
2.
Treasury Stock ……………………………………………………….
68,000
Cash (1,700 X $40) …………………………………………..
68,000
3.
Land ………………………………………………………………………
30,000
Treasury Stock (700 X $40) …………………………..
28,000
Paid-in Capital From Treasury Stock ………………..
EXERCISE 15-18 (Continued)
4.
Cash (500 X $105) …………………………………………………..
52,500
Preferred Stock (500 X $100) …………………………..
50,000
Paid-in Capital in Excess of Par—
Preferred Stock ……………………………………………
2,500
5.
Retained Earnings (1,900* X $45) …………………………..
85,500
Common Stock Dividend Distributable
(1,900 X $5) ………………………………………………….
9,500
Paid-in Capital in Excess of Par—
Common Stock …………………………………………….
Common Stock Dividend Distributable …………………….
Common Stock ……………………………………………….
9,500
Retained Earnings ………………………………………………….
Dividends Payable—Preferred
(2,500 X $10) ………………………………………………..
25,000
Dividends Payable—Common
(20,900* X $2) ……………………………………………….
41,800
*(19,000 + 1,900)
(b) ANNE CLEVES COMPANY
Stockholders’ Equity
December 31, 2014
Capital stock
Preferred stock, 10%, $100 par, 10,000 shares
authorized, 2,500 shares issued and
outstanding
$250,000
Common stock, $5 par, 100,000 shares
authorized, 21,900 shares issued, 20,900
shares outstanding
Total capital stock
Additional paid-in capital
Total paid-in capital
Retained earnings
EXERCISE 15-18 (Continued)
Total paid-in capital and retained earnings
1,192,700
Less: Cost of treasury stock (1,000 shares common)
40,000
Total stockholders’ equity
$1,152,700
Computations:
Preferred stock $200,000 + $50,000 = $250,000
EXERCISE 15-19 (20–25 minutes)
(a) Mary Ann Benson Company is the more profitable in terms of return
on total assets. This may be shown as follows:
It should be noted that these returns are based on net income related
to total assets, where the ending amount of total assets is con–
sidered representative. If the return on total assets uses net income
before interest but after taxes in the numerator, the rates of return on
total assets are the same as shown below:
=
EXERCISE 15-19 (Continued)
(b) Kingston Company is the more profitable in terms of return on
common stock equity. This may be shown as follows:
provided to the student.)
Kingston Company
Funds Supplied
Funds
Supplied
Rate of Return
on Funds at
15.71%*
Cost of
Funds
Accruing to
Common
Stock
Current liabilities
$ 300,000
$ 47,130
$ 0
$ 47,130
Common stock
The schedule indicates that the income earned on the total assets
(before interest cost) was $659,820. The interest cost (net of tax) of
this income was $66,000, which indicates a net return to the common
equity of $593,820.
(c) The Kingston Company earned a net income per share of $5.94
($594,000 ÷ 100,000) while Benson Company had an income per share
EXERCISE 15-19 (Continued)
(d) Yes, from the point of view of income it is advantageous for the
stockholders of the Kingston Company to have long-term debt
EXERCISE 15-20 (15 minutes)
(a) Rate of return on common stock equity:
Note: Some analysts use after-tax interest expense to compute the bond rate.
*EXERCISE 15-21 (10–15 minutes)
Preferred
Common
Total
(a)
Preferred stock is noncumulative,
(b)
Preferred stock is cumulative,
EXERCISE 15-21 (Continued)
Preferred
Common
Total
(c)
Preferred stock is cumulative,
participating
$57,778
$32,222
$90,000
The computation for these amounts is as follows:
Preferred
Common
Dividends in arrears (2 X $16,000)
$32,000
Current dividend
Pro-rata share to common
(5,000 X $50 X 8%)
Balance dividend pro-rata
9,778
*Additional amount available for participation
($90,000 – $32,000 – $16,000 – $20,000)
22,000
Par value of stock that is to participate
Preferred (2,000 X $100)
Common (5,000 X $50)
Rate of participation
$22,000 ÷ $450,000
4.8889%
Participating dividend
Preferred, 4.8889% X $200,000
Common, 4.8889% X $250,000
Note to instructor: Another way to compute the participating amount is as
follows:
$200,000
$450,000
$250,000
*EXERCISE 15-22 (10–15 minutes)
Preferred
Common
Total
(a)
Preferred stock is cumulative,
fully participating
$36,000
$330,000
$366,000
The computation for these amounts is as follows:
Preferred
$36,000
$330,000
$366,000
*Additional amount available for participation
($366,000 – $14,000 – $210,000)
$ 128,000
Par value of stock that is to participate
($200,000 + $3,000,000)
$128,000 ÷ $3,200,000
Participating dividend
Preferred, 4% X $200,000
Common, 4% X $3,000,000
Note to instructor: Another way to compute the participating amount is as
follows:
$128,000
*EXERCISE 15-22 (Continued)
Preferred
Common
Total
(b)
Preferred stock is cumulative
and participating
$14,000
$352,000
$366,000
The computation for these amounts is as follows:
Current dividend (preferred)
(7% X $10 X 20,000)
Remainder to common
($366,000 – $14,000)
Preferred
Common
Total
(c)
Preferred stock is noncumulative
and participating in distributions
in excess of 10%
$17,250
$348,750
$366,000
Preferred
Common
Total
Current year
Preferred (7% X $10 X 20,000)
$14,000
$ 14,000
Additional 3% to common
Balance dividend pro-rata
*Additional amount available for participation
($366,000 – $14,000 – $210,000 – $90,000)
$ 52,000
Par value of stock that is to participate
($200,000 + $3,000,000)
Rate of participation
Participating dividend
Preferred 1.625% X $200,000
Common 1.625% X $3,000,000
*EXERCISE 15-23 (10–15 minutes)
Assumptions
(a)
(b)
Preferred, noncumulative
and nonparticipating
Preferred, cumulative
and fully participating
Year
Paid-
out
Preferred
Common
Preferred
Common
2012
$13,000
$5.20
-0-
$ 5.20
-0-
2015
$76,000
$6.00
The computations for part (a) are as follows:
2012
Dividends paid
$13,000
Amount due preferred (2,500 X $100 X 6%)
$15,000
Preferred per share ($13,000 ÷ 2,500)
Common per share
2013
Dividends paid
$26,000
Amount due preferred
15,000
Amount due common
$11,000
Preferred per share ($15,000 ÷ 2,500)
Common per share ($11,000 ÷ 15,000)
2014
Dividends paid
$57,000
Amount due preferred
15,000
Amount due common
$42,000
Preferred per share ($15,000 ÷ 2,500)
Common per share ($42,000 ÷ 15,000)
*EXERCISE 15-23 (Continued)
2015
Dividends paid
$76,000
Amount due preferred
Amount due common
$61,000
Preferred per share ($15,000 ÷ 2,500)
Common per share ($61,000 ÷ 15,000)
The computations for part (b) are as follows:
2012
Dividends paid
$13,000
Amount due preferred (2,500 X $100 X 6%)
$15,000
Preferred per share ($13,000 ÷ 2,500)
Common per share
2013
Dividends paid
$26,000
Amount due preferred
In arrears ($15,000 – $13,000)
2,000
Current
$17,000
Amount due common ($26,000 – $17,000)
$ 9,000
Preferred per share ($17,000 ÷ 2,500)
Common per share ($9,000 ÷ 15,000)
*EXERCISE 15-23 (Continued)
2014
Dividends paid
$57,000
Amount due preferred
Current (2,500 X $100 X 6%)
$15,000
Amount due common
Current (15,000 X $10 X 6%)
$ 9,000
Amount available for participation
($57,000 – $15,000 – $9,000)
Par value of stock that is to participate
($250,000 + $150,000)
Rate of participation
$33,000 ÷ $400,000
8.25%
Participating dividend
Preferred (8.25% X $250,000)
$20,625
Common (8.25% X $150,000)
$12,375
Total amount per share—Preferred
Current $15,000
Participation 20,625
$35,625 ÷ 2,500
Total amount per share—Common
Current $ 9,000
Participation 12,375
$21,375 ÷ 15,000
*EXERCISE 15-23 (Continued)
2015
Dividends paid
$76,000
Amount due preferred
Current (2,500 X $100 X 6%)
$15,000
Amount due common
Current (15,000 X $10 X 6%)
$ 9,000
Amount available for participation
($76,000 – $15,000 – $9,000)
Par value that is to participate
($250,000 + $150,000)
Rate of participation
$52,000 ÷ $400,000
Participating dividend
Preferred (13% X $250,000)
$32,500
Common (13% X $150,000)
$19,500
Total amount per share—Preferred
Current $15,000
Participation 32,500
$47,500 ÷ 2,500
Total amount per share—Common
Current $ 9,000
Participation 19,500
$28,500 ÷ 15,000
*EXERCISE 15-24 (10–15 minutes)
(a)
Common
Preferred
Stockholders’ equity
Preferred stock
$500,000
Common stock
Retained earnings
Dividends in arrears (3 years at 8%)
Remainder to common*
Shares outstanding
750,000
Book value per share ($1,130,000 ÷ 750,000)
$1.51
*Balance in retained earnings
($800,000 – $40,000 – $260,000)
Less: Dividends to preferred
Available to common
(b)
Stockholders’ equity
Preferred stock
$500,000
Common stock
$ 750,000
Retained earnings
Dividends in arrears (3 years at 8%)
$120,000
Remainder to common*
Shares outstanding
750,000
Book value per share ($1,100,000 ÷ 750,000)
$1.47
*Balance in retained earnings
($800,000 – $40,000 – $260,000)
$500,000
Less: Liquidating premium to preferred
Dividends to preferred
Available to common
TIME AND PURPOSE OF PROBLEMS
Problem 15-1 (Time 50–60 minutes)
Purpose—to provide the student with an understanding of the necessary entries to properly account for
Problem 15-2 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to record the acquisition of treasury stock and its
sale at three different prices. In addition, a stockholders’ equity section of the balance sheet must be
prepared.
Problem 15-3 (Time 25–30 minutes)
Problem 15-4 (Time 20–30 minutes)
Purpose—to provide the student with an understanding of the necessary entries to properly account for
Problem 15-5 (Time 30–40 minutes)
Purpose—to provide the student with an understanding of the proper entries to reflect the reacquisition,
and reissuance of a corporation’s shares of stock. The student is required to record these treasury stock
transactions under the cost method, assuming the FIFO method for purchase and sale purposes.
Problem 15-6 (Time 30–40 minutes)
Purpose—to provide the student with an understanding of the necessary entries to properly account for
Problem 15-7 (Time 15–20 minutes)
Purpose—to provide the student with an understanding of the proper accounting for the declaration and
Problem 15-8 (Time 20–25 minutes)
Purpose—to provide the student with an understanding of the accounting effects related to stock divi-
dends and stock splits. The student is required to analyze their effect on total assets, common stock,
paid-in capital, retained earnings, and total stockholders’ equity.
Problem 15-9 (Time 20–25 minutes)
Purpose—to provide the student with an understanding of the effect which a series of transactions
Time and Purpose of Problems (Continued)
Problem 15-10 (Time 35–45 minutes)
Purpose—to provide the student with an understanding of the differences between a stock dividend and
a stock split. Acting as a financial advisor to the Board of Directors, the student must report on each
option and make a recommendation.
Problem 15-11 (Time 25–35 minutes)
Purpose—to provide the student with an understanding of the proper accounting for the declaration and
Problem 15-12 (Time 35–45 minutes)
Purpose—to provide the student a comprehensive problem involving all facets of the stockholders’