17-21
E17-13 (continued)
1. (continued)
(5) Retained Earnings (10,000 x $0.70) 7,000
2. (1)
Current assets
Investment in M bonds
Fixed assets (net)
$ 50,000
9,000
200,000
$259,000
Current liabilities
Common stock, no par
Retained earnings
$ 30,000
150,000
79,000
$259,000
E17-14
1. 6% stock dividend
(a) Retained Earnings (25,000 x 0.06 x $30) 45,000
Common Stock To Be Distributed 15,000
Additional Paid-in Capital
2. 40% stock dividend
(a) Retained Earnings (25,000 x 0.40 x $10) 100,000
Common Stock To Be Distributed 100,000
E17-15
1. and 2. Stockholders’ Equity (1) (2)
Common stock, $10 par $ 460,000 $ 520,000
17-23
E17-15 (continued )
E17-16
1. (1) Accumulated Depreciation 15,000
Retained Earnings 15,000
2. MILES COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2010
Retained earnings, as previously reported,
January 1, 2010 $142,400
17-24
E17-17
Stockholders’ Equity (in part)
Retained earnings (see Note 1) $400,000
Notes to 2010 Financial Statements
E17-18
HERNANDEZ COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2010
Retained earnings, as previously
reported, January 1, 2010 $120,000
2. Note A: Retained earnings are restricted in the amount of $20,000, the cost of
the common shares being held as treasury stock.
E17-19
1. FRANKLIN COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2010
Retained earnings, as previously reported,
January 1, 2010 $206,000
2. Note A: Retained earnings are restricted in the amount of $14,000, the cost of
the common shares being held as treasury stock.
17-26
E17-20
WILK MANUFACTURING CORPORATION
Stockholders’ Equity
December 31, 2010
Contributed Capital
Preferred stock, $50 par (6,000 shares
authorized, issued, and outstanding) $300,000
Notes to Financial Statements
Note A: Retained earnings are restricted in the amount of $9,000, the cost of
the treasury stock.
17-27
1. WINSLOW DESIGN COMPANY
Statement of Changes in Stockholders’ Equity
For Year Ended December 31, 2010
Preferred Stock Common Stock Additional Paid-In Capital Treasury
Shares
Issued
Par
Value
Shares
Issued
Par
Value
Preferred
Stock
Common
Stock
Treasury
Stock
Retained
Earnings
Stock
(cost)
Balances, 1/1/2010
Issued preferred stock
1,250
250
$125,000
25,000
15,000
$150,000
$55,000
16,000a
$105,000
$ 0
$78,000
$(4,200)
a($164 – $100) x 250
b($17 – $10) x 3,000
SOLUTIONS TO PROBLEMS
P17-1
MANTY COMPANY
Income Statement
For Year Ended December 31, 2010
Sales $206,000
Cost of goods sold (131,000)
Extraordinary gain from bond retirement (net
of $4,500 income tax expense) 10,500
Net income $ 41,125
Notes to Financial Statements
Note A: Preferred dividends of $4,800 were deducted from income from
Note to Instructor: 18,000 common shares ($90,000 ÷ $5 par) were outstanding
P17-2
1. AGOCHA COMPANY
Comparative Income Statements
For Years Ended December 31, 2010 and 2011
2010 2011
Sales $124,300 $140,000
Cost of goods sold (75,000) (80,000)
Gross profit $ 49,300 $ 60,000
Basic earnings per share (see Note A):
Income before extraordinary item $2.79 $2.92
Notes to Financial Statements
Note A: For comparative purposes, retroactive recognition back to 2010 was
given to a 20% stock dividend issued in 2011. Preferred dividends of $3,500 were
P17-2 (continued)
2. Price / earnings ratio = operationscontinuingfromshareperEarnings
sharecommonperpriceMarket
2011 2010
P17-3
1.a. & b.
Earnings
Explanation Earnings ÷ Shares = Per Share
Basic earnings and shares $ 91,000a ÷ 30,000b = $3.03 Basic
Increment in shares (options) ÷ 500c
cIncrement due to share options:
17-31
P17-3 (continued)
2. Earnings per Share (See Note 1)
Basic earnings per share $3.03
Diluted earnings per share $2.85
3. IFRS do not require a company to include any unrecognized compensation
cost in the application of the treasury stock method for share options. Therefore,
the calculations in footnote (c) would differ as shown below.
Explanation Earnings ÷ Shares = Per Share
cIncrement due to share options:
Issued 2,000
17-32
P17-4
1. and 2.
(1) Impact (2) Ranking
10.2% bonds: 5,600
$14,280
28x200
0.7x$20,400 = = $2.55 5
3. and 4. Earnings
Explanation Earnings ÷ Shares = Per Share
Basic earnings and shares $ 96,000a ÷ 40,000 = $2.40 Basic
7.5% preferred dividend savings 13,500b
Increment in shares (P/S) 10,800
5. Madsen Company would report basic earnings per share of $2.40 and diluted
earnings per share of $2.02 on its 2010 income statement.
P17-5
Note to Instructor: This problem includes an extraordinary loss, so the impact of
1. and 2. Earnings
Explanation Earnings ÷ Shares = Per Share
Basic earnings and shares $117,000a ÷ 25,300b = $4.62 Basicf
Increment in shares (options) 600c
Tentative DEPS1 amounts $117,000 ÷ 25,900 = $4.52 DEPS1
cIncrement due to share options:
dImpact on diluted earnings per share and ranking:
eDilutive effect:
P17-5 (continued)
3. Basic earnings per share (See Note 1)
Income before extraordinary items $4.62
Extraordinary loss (0.39)
Net income $4.23
P17-6
1. and 2. Earnings
Explanation Earnings ÷ Shares = Per Share
Basic earnings and shares $122,000a ÷ 33,333b = $3.66 Basic
Increment in shares (options) 293c
cIncrement due to share options:
Issued 4,000
P17-6 (continued)
1. and 2. (continued)
dImpact on diluted earnings per share and ranking:
Impact Ranking
10% bonds: == 4,400
$13,300
22x200
0.7x$1,000]–$200,000)x[(0.10 $3.02 1
3. Frost Company would report basic earnings per share of $3.66 and diluted
earnings per share of $3.46 on its 2010 income statement.
P17-7 (AICPA adapted solution)
LAFAYETTE CORPORATION
Schedule to Compute Basic Earnings Per Share
and Diluted Earnings Per Share
For Year Ended September 30, 2011
Earnings Adjusted for
Assumed Conversions
Number
of
Shares
Earnings Per Share
(Income
Statement)
Basic earnings per share
$540,000
350,000
$1.54
P17-7 (continued)
Computation of Number of Shares
To Be Used in Earnings Per Share Computations
Weighted average shares outstanding during year:
October 1 – November 30, 2010
(giving retroactive effect to stock split) 120,000 x 1/6 20,000
P17-8 (AICPA adapted solution)
1. MASON CORPORATION
Weighted Average Number of Common Shares for
Computation of Basic Earnings per Share
For Year Ended December 31, 2010
Months Weighted
Dates Shares Outstanding Shares
January 1 – August 31 300,000 x 8 = 2,400,000
P17-8 (continued)
2. MASON CORPORATION
Computation of Basic Earnings Per Share
For Year Ended December 31, 2010
Income:
Net income $750,000
3. MASON CORPORATION
Number of Shares for Computation of
Diluted Earnings per Share
For Year Ended December 31, 2010
Weighted average number of shares outstanding
(Requirement 1) 312,000
Schedule 1:
Assumed Shares Increase From Share Options-
Treasury Stock Method
Shares
Shares that would be issued upon exercise of options 30,000
17-38
P17-8 (continued)
3. (continued)
Schedule 2:
Assumed Shares Increase (Decrease) From
Warrants-Treasury Stock Method
Antidilutive warrants (not included in EPS computations) (1,111)
4. MASON CORPORATION
Computation of Diluted Earnings Per Share
For Year Ended December 31, 2010
Income:
P17-9
Preferred Common Total
1. Year 1 Preferred $ 6,000 $ 0 $ 6,000
Year 2 Current preferred dividend
($100 x 0.07 x 1,000) $ 7,000 —
17-39
P17-9 (continued)
Preferred Common Total
2. Year 1 Preferred (and $1,000 is
in arrears) $ 6,000 $ 0 $ 6,000
3. Year 1 Preferred (and $1,000 is
in arrears) $ 6,000 $ 0 $ 6,000
17-40
P17-9 (continued)
4. Year 1 Preferred (and $1,000 is
in arrears) $ 6,000 $ 0 $ 6,000
Year 2 Preferred in arrears $ 1,000 —
P17-10 (AICPA adapted solution)
TOMASCO, INC.
Maximum Cash Dividend Distribution
December 31, 2010
Common
stock
4%
Preferred
stock
8%
Preferred
stock
Total
8% preferred stock, dividends
in arrears for 2006-2009