CHAPTER 13
CORPORATIONS: ORGANIZATION, STOCK
TRANSACTIONS, AND DIVIDENDS
DISCUSSION QUESTIONS
1.
No. Common stock with a higher par is not necessarily a better investment than common
stock with a lower par because par is an amount assigned to the shares.
2.
The broker is not correct. Corporations are not legally liable to pay dividends until the
dividends are declared. If the company that issued the preferred stock has operating losses,
it could omit dividends, first, on its common stock and, later, on its preferred stock.
3.
The company may not have had enough cash on hand to pay a dividend on the common
stock, or resources may be needed for plant expansion, replacement of facilities, payment of
liabilities, etc.
4.
a.
b.
No change.
Total equity is the same.
5.
a.
b.
Current liability
Stockholders’ equity
6.
a.
b.
It has no effect on revenue or expense.
It reduces stockholders’ equity by $3,000,000.
7.
a.
b.
It has no effect on revenue.
It increases stockholders’ equity by $3,750,000.
8.
The three classifications of restrictions on retained earnings are legal, contractual, and
discretionary. Restrictions are normally reported in the notes to the financial statements.
9.
Such prior period adjustments should be reported as an adjustment to the beginning balance
of retained earnings.
10.
The primary purpose of a stock split is to bring about a reduction in the market price per
share and thus to encourage more investors to buy the company’s shares.
13-1
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CHAPTER 13
Corporations: Organization, Stock Transactions, and Dividends
PRACTICE EXERCISES
PE 13–1A
Year 1
Amount distributed………………………………… $30,000
30,000
Preferred dividend (40,000 shares)……………
$
0
Common dividend (50,000 shares)………………
Year 2
Year 3
$90,000
66,000*
$24,000
$125,000
48,000
$ 77,000
$1.65
$0.48
$1.20
$1.54
* $18,000 + $48,000
Dividends per share:
Preferred stock…………………………………
Common stock…………………………………
PE 13–1B
Amount distributed………………………………
Preferred dividend (16,000 shares)……………
Common dividend (80,000 shares)……………
*
$0.75
None
Year 1
Year 2
Year 3
$21,600
6,400
$4,000
4,000
$100,800
8,800*
$15,200
$
0
$ 92,000
$0.25
None
$0.55
$1.15
$2,400 + $6,400
Dividends per share:
Preferred stock…………………………………
Common stock…………………………………
$0.40
$0.19
PE 13–2A
May
Sept.
Dec.
10 Cash (90,000 shares × $42)
Common Stock (90,000 shares × $30)
Paid-In Capital in Excess of Stated Value—
Common Stock [90,000 shares × ($42 – $30)]
3,780,000
2,700,000
1,080,000
3 Cash
Preferred Stock (36,000 shares × $25)
900,000
1 Cash (14,000 shares × $33)
Preferred Stock (14,000 shares × $25)
Paid-In Capital in Excess of Par—
Preferred Stock [14,000 shares × ($33 – $25)]
462,000
900,000
350,000
112,000
13-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
PE 13–2B
Jan.
Feb.
Aug.
22 Cash
Common Stock (180,000 shares × $4)
720,000
14 Cash
Preferred Stock (44,000 shares × $55)
2,420,000
30 Cash (9,000 shares × $60)
Preferred Stock (9,000 shares × $55)
Paid-In Capital in Excess of Par—
Preferred Stock [9,000 shares × ($60 – $55)]
720,000
2,420,000
540,000
495,000
45,000
PE 13–3A
Aug.
1 Cash Dividends
Cash Dividends Payable
Oct.
15 No entry required.
Nov.
14 Cash Dividends Payable
Cash
1,250,000
1,250,000
1,250,000
1,250,000
PE 13–3B
Feb.
Mar.
May
1 Cash Dividends
Cash Dividends Payable
480,000
480,000
18 No entry required.
1 Cash Dividends Payable
Cash
480,000
480,000
PE 13–4A
Feb.
Mar.
15 Stock Dividends (250,000 shares × 2% × $52)
Stock Dividends Distributable (5,000 shares × $40)
Paid-In Capital in Excess of Par—
Common Stock [$5,000 shares × ($52 – $40)]
260,000
200,000
60,000
27 No entry required.
May
2 Stock Dividends Distributable
Common Stock
200,000
200,000
PE 13–4B
June
8 Stock Dividends (820,000 shares × 5% × $63)
Stock Dividends Distributable (41,000 shares × $35)
Paid-In Capital in Excess of Par—
Common Stock [41,000 shares × ($63 – $35)]
July
13 No entry required.
Aug.
12 Stock Dividends Distributable
Common Stock
2,583,000
1,435,000
1,148,000
1,435,000
1,435,000
PE 13–5A
Jan.
Apr.
Oct.
31 Treasury Stock (22,500 shares × $31)
Cash
697,500
20 Cash (12,800 shares × $40)
Treasury Stock (12,800 shares × $31)
Paid-In Capital from Sale of
Treasury Stock [12,800 shares × ($40 – $31)]
512,000
4 Cash (9,700 shares × $28)
Paid-In Capital from Sale of
Treasury Stock [9,700 shares × ($31 – $28)]
Treasury Stock (9,700 shares × $31)
697,500
396,800
115,200
271,600
29,100
300,700
PE 13–5B
May
27 Treasury Stock (75,000 shares × $8)
Cash
Aug.
Nov.
3 Cash (54,000 shares × $11)
Treasury Stock (54,000 shares × $8)
Paid-In Capital from Sale of
Treasury Stock [54,000 shares × ($11 – $8)]
14 Cash (21,000 shares × $7)
Paid-In Capital from Sale of
Treasury Stock [21,000 shares × ($8 – $7)]
Treasury Stock (21,000 shares × $8)
600,000
600,000
594,000
432,000
162,000
147,000
21,000
168,000
PE 13–6A
Stockholders’ Equity
Paid-in capital:
Common stock, $60 par (250,000 shares
authorized, 200,000 shares issued)
Excess of issue price over par
From sale of treasury stock
Total paid-in capital
Retained earnings
$12,000,000
3,200,000
$15,200,000
320,000
$15,520,000
18,500,000
$34,020,000
1,137,500
$32,882,500
Total
Deduct treasury stock (17,500 shares at cost)
Total stockholders’ equity
PE 13–6B
Stockholders’ Equity
Paid-in capital:
Common stock, $120 par (500,000 shares
authorized, 400,000 shares issued)
Excess of issue price over par
$48,000,000
6,400,000
$ 54,400,000
From sale of treasury stock
Total paid-in capital
Retained earnings
4,500,000
$ 58,900,000
63,680,000
Total
Deduct treasury stock (40,000 shares at cost)
Total stockholders’ equity
$122,580,000
5,200,000
$117,380,000
PE 13–7A
ROCKWELL INC.
Retained Earnings Statement
For the Year Ended June 30, 2014
Retained earnings, July 1, 2013
Net income
Less dividends declared
Increase in retained earnings
Retained earnings, June 30, 2014
$3,900,000
$714,000
150,000
564,000
$4,464,000
PE 13–7B
NORIC CRUISES INC.
Retained Earnings Statement
For the Year Ended October 31, 2014
Retained earnings, November 1, 2013
$2,350,000
Net income
Less dividends declared
475,000
Increase in retained earnings
Retained earnings, October 31, 2014
$12,400,000
1,875,000
$14,275,000
PE 13–8A
a.
2014: Earnings per Share =
=
=
2013: Earnings per Share =
=
=
b.
2014: Earnings per Share =
=
=
2013: Earnings per Share =
=
=
b.
$448,750 – $40,000
75,000 shares
$408,750
= $5.45
75,000 shares
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$376,000 – $40,000
60,000 shares
$336,000
= $5.60
60,000 shares
The decrease in the earnings per share from $5.60 to $5.45 indicates an
unfavorable trend in the company’s profitability.
PE 13–8B
a.
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$2,485,700 – $50,000
115,000 shares
$2,435,700
= $21.18
115,000 shares
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$1,538,000 – $50,000
80,000 shares
$1,488,000
= $18.60
80,000 shares
The increase in the earnings per share from $18.60 to $21.18 indicates a
favorable trend in the company’s profitability.
EXERCISES
Ex. 13–1
a.
b.
1st Year
2nd Year
3rd Year
4th Year
Total dividend declared……………
$24,000
$81,000
Preferred dividend (current)………
$24,000
$51,000*
$92,000
$54,000
$139,000
$ 54,000
Preferred dividend in arrears………
—
30,000
3,000
—
Total preferred dividends…………
$24,000
$81,000
$57,000
$ 54,000
Preferred shares outstanding……
÷ 30,000
÷ 30,000
÷ 30,000
÷ 30,000
Preferred dividend per share……
$
$
$
0.80
2.70
1.90
$
1.80
* $51,000 = $81,000 – $30,000
Dividend for common shares
$ 35,000
$ 85,000
Common shares outstanding……
÷ 125,000
÷ 125,000
Common dividend per share………
$
$
(a. – b.)……………………………… $
Ex. 13–2
a.
—
$
—
0.28
1st Year
2nd Year
3rd Year
Total dividend declared……………
$36,000
$58,000
Preferred dividend (current)………
$36,000
$44,000*
$75,000
$50,000
0.68
4th Year
$124,000
$ 50,000
—
Preferred dividend in arrears……
b.
14,000
6,000
—
$36,000
$58,000
$56,000
$ 50,000
÷ 40,000
÷ 40,000
÷ 40,000
÷ 40,000
$
$
Total preferred dividends…………
Preferred shares outstanding……
Preferred dividend per share……… $
0.90
1.45
1.40
$
1.25
* $44,000 = $58,000 – $14,000
Dividend for common shares
(a. – b.)……………………………… $
Common shares outstanding………
Common dividend per share……
—
$
—
$ 19,000
$ 74,000
÷ 100,000
÷ 100,000
$
$
0.19
0.74
CHAPTER 13
Corporations: Organization, Stock Transactions, and Dividends
Ex. 13–3
a.
Feb.
June
b.
25 Cash (120,000 shares × $40)
Common Stock (120,000 shares × $36)
Paid-In Capital in Excess of Par—
Common Stock [120,000 shares × ($40 – $36)]
3 Cash (50,000 shares × $9)
Preferred Stock (50,000 shares × $8)
Paid-In Capital in Excess of Par—
Preferred Stock [50,000 shares × ($9 – $8)]
4,800,000
4,320,000
480,000
450,000
400,000
50,000
$5,250,000 ($4,800,000 + $450,000)
Ex. 13–4
a.
Aug.
Dec.
b.
5 Cash (500,000 shares × $3)
Common Stock (500,000 shares × $1)
Paid-In Capital in Excess of Stated Value—
Common Stock [500,000 shares × ($3 – $1)]
17 Cash (5,000 shares × $200)
Preferred Stock (5,000 shares × $180)
Paid-In Capital in Excess of Par—
Preferred Stock [5,000 shares × ($200 – $180)]
1,500,000
500,000
1,000,000
1,000,000
900,000
100,000
$2,500,000 ($1,500,000 + $1,000,000)
Ex. 13–5
May
10 Land (3,600 shares × $28)
Common Stock (3,600 shares × $4)
Paid-In Capital in Excess of Par—
Common Stock [3,600 shares × ($28 – $4)]
100,800
14,400
86,400
13-10
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Ex. 13–6
a.
b.
c.
Cash
Common Stock (45,000 shares × $20)
Organizational Expenses
Common Stock (400 shares × $20)
900,000
900,000
8,000
8,000
Cash
Common Stock (60,000 shares × $20)
1,200,000
Land
Building
Interest Payable*
Mortgage Note Payable
Common Stock (14,925 shares × $20)
150,000
600,000
1,200,000
1,500
450,000
298,500
* An acceptable alternative would be to credit Interest Expense.
Ex. 13–7
Oct.
Oct.
1
1
Cash (120,000 shares × $31.50)
Common Stock (120,000 shares × $30.00)
Paid-In Capital in Excess of Par—
Common Stock [120,000 shares × ($31.50 – $30.00)]
3,780,000
Buildings
Land
Preferred Stock (35,000 shares × $80)
Paid-In Capital in Excess of Par—
Preferred Stock [35,000 shares × ($92 – $80)]
2,380,000
840,000
3,600,000
180,000
2,800,000
420,000
Ex. 13–8
Feb.
1 Cash
Common Stock (180,000 shares × $25)
1 Organizational Expenses
Common Stock (400 shares × $25)
Mar.
Apr.
9 Land
Buildings
Equipment
Common Stock (30,000 shares × $25.00)
Paid-In Capital in Excess of Par—
Common Stock [30,000 shares × ($29.50 – $25.00)]
13 Cash (8,500 shares × $131)
Preferred Stock (8,500 shares × $120)
Paid-In Capital in Excess of Par—
Preferred Stock [8,500 shares × ($131 – $120)]
4,500,000
4,500,000
10,000
10,000
200,000
550,000
135,000
750,000
135,000
1,113,500
1,020,000
93,500
Ex. 13–9
July
10 Cash Dividends
Cash Dividends Payable
Aug.
Sept.
187,500
187,500
9 No entry required.
18 Cash Dividends Payable
Cash
187,500
Stock Dividends [(300,000 shares × 5%) × $40]
Stock Dividends Distributable (15,000 shares × $18)
Paid-In Capital in Excess of Par—
Common Stock [15,000 shares × ($40 – $18)]
600,000
Stock Dividends Distributable
Common Stock
270,000
187,500
Ex. 13–10
a.
(1)
(2)
b.
(1)
(2)
(3)
$6,900,000 ($5,400,000 + $1,500,000)
$78,000,000
$84,900,000 ($6,900,000 + $78,000,000)
c.
(1)
(2)
(3)
$7,500,000 ($5,400,000 + $1,500,000 + $270,000 + $330,000)
$77,400,000 ($78,000,000 – $600,000)
$84,900,000 ($7,500,000 + $77,400,000)
270,000
330,000
270,000
Ex. 13–11
a.
Mar.
Aug.
Nov.
4 Treasury Stock (33,000 shares × $84)
Cash
27 Cash (25,000 shares × $90)
Treasury Stock (25,000 shares × $84)
Paid-In Capital from Sale of Treasury
Stock [25,000 shares × ($90 – $84)]
11 Cash (8,000 shares × $80)
Paid-In Capital from Sale of Treasury
Stock [8,000 shares × ($84 – $80)]
Treasury Stock (8,000 shares × $84)
2,772,000
2,772,000
2,250,000
2,100,000
150,000
640,000
32,000
672,000
b.
$118,000 ($150,000 – $32,000) credit
c.
Crystal Lake may have purchased the stock to support the market price of
the stock, to provide shares for resale to employees, or for reissuance to
employees as a bonus according to stock purchase agreements.
Ex. 13–12
a.
Feb.
Apr.
July
17 Treasury Stock (50,000 shares × $12)
Cash
600,000
29 Cash (31,000 shares × $15)
Treasury Stock (31,000 shares × $12)
Paid-In Capital from Sale of Treasury
Stock [31,000 shares × ($15 – $12)]
465,000
31 Cash (12,000 shares × $17)
Treasury Stock (12,000 shares × $12)
Paid-In Capital from Sale of Treasury
Stock [12,000 shares × ($17 – $12)]
204,000
600,000
372,000
93,000
b.
$153,000 ($93,000 + $60,000) credit
c.
$84,000 (7,000 shares × $12) debit
d.
The balance in the treasury stock account is reported as a deduction from the
total of the paid-in capital and retained earnings.
144,000
60,000
Ex. 13–13
a.
May
Sept.
Nov.
14 Treasury Stock (23,500 shares × $75)
Cash
6 Cash (14,000 shares × $81)
Treasury Stock (14,000 shares × $75)
Paid-In Capital from Sale of Treasury
Stock [14,000 shares × ($81 – $75)]
30 Cash (9,500 shares × $72)
Paid-In Capital from Sale of Treasury
Stock [9,500 shares × ($75 – $72)]
Treasury Stock (9,500 shares × $75)
1,762,500
1,762,500
1,134,000
1,050,000
84,000
684,000
28,500
712,500
b.
$55,500 ($84,000 – $28,500) credit
c.
Stockholders’ equity section
d.
Biscayne Bay Water Inc. may have purchased the stock to support the market price
of the stock, to provide shares for resale to employees, or for reissuance to
employees as a bonus according to stock purchase agreements.
CHAPTER 13
Corporations: Organization, Stock Transactions, and Dividends
Ex. 13–14
Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $120 par
(85,000 shares authorized,
70,000 shares issued)
Excess of issue price over par
Common stock, no par, $14 stated
value (375,000 shares authorized,
320,000 shares issued)
Excess of issue price over par
$8,400,000
210,000
$ 8,610,000
$4,480,000
480,000
4,960,000
From sale of treasury stock
45,000
$13,615,000
Total paid-in capital
Ex. 13–15
Stockholders’ Equity
Paid-in capital:
Common stock, $45 par
(80,000 shares authorized,
68,000 shares issued)
Excess of issue price over par
From sale of treasury stock
Total paid-in capital
Retained earnings
Total
Deduct treasury stock
(9,000 shares at cost)
Total stockholders’ equity
$3,060,000
272,000
$ 3,332,000
115,000
$ 3,447,000
20,553,000
$24,000,000
324,000
$23,676,000
CHAPTER 13
Corporations: Organization, Stock Transactions, and Dividends
Ex. 13–16
Stockholders’ Equity
Paid-in capital:
Preferred 1% stock, $150 par
(50,000 shares authorized,
48,000 shares issued)
Excess of issue price over par
$ 7,200,000
384,000
$ 7,584,000
Common stock, $36 par
(300,000 shares authorized,
280,000 shares issued)
Excess of issue price over par
$10,080,000
420,000
10,500,000
From sale of treasury stock
Total paid-in capital
Retained earnings
340,000
$18,424,000
71,684,000
Total
Deduct treasury common stock
(24,000 shares at cost)
$90,108,000
1,008,000
$89,100,000
Total stockholders’ equity
Ex. 13–17
ATLAS PUMPS CORPORATION
Retained Earnings Statement
For the Year Ended January 31, 2014
Retained earnings, February 1, 2013
Net income
Less dividends declared
Increase in retained earnings
Retained earnings, January 31, 2014
$48,110,000
$9,330,000
2,400,000
6,930,000
$55,040,000
Ex. 13–18
1.
Retained earnings is not part of paid-in capital.
2.
The cost of treasury stock should be deducted from the total stockholders’
equity.
3.
Dividends payable should be included as part of current liabilities and not
as part of stockholders’ equity.
4.
Common stock should be included as part of paid-in capital.
5.
The amount of shares of common stock issued of 825,000 times the par value per
share of $20 should be extended as $16,500,000, not $17,655,000. The difference,
$1,155,000, probably represents paid-in capital in excess of par.
6.
Organizing costs should be expensed as Organizational Expenses when incurred and
not included as a part of stockholders’ equity.
One possible corrected Stockholders’ Equity section of the balance sheet using Method 1
of Exhibit 4 is as follows:
Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $80 par (125,000
shares authorized and issued)
Excess of issue price over par
Common stock, $20 par (1,000,000 shares
authorized, 825,000 shares issued)
Excess of issue price over par
$10,000,000
500,000
$16,500,000
1,155,000
$ 10,500,000
17,655,000
Total paid-in capital
Retained earnings*
$ 28,155,000
96,400,000
Total
Deduct treasury stock (75,000 shares at cost)
Total stockholders’ equity
$124,555,000
1,755,000
$122,800,000
* $96,700,000 – $300,000. Since the organizing costs should have been expensed, the retained earnings
should be $300,000 less.
Ex. 13–19
I-CARDS INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2014
Paid-In
Balance, Jan. 1, 2014
Common
Capital in
Stock,
$40 par
Excess
of Par
$4,800,000
$ 960,000
1,200,000
300,000
Treasury
Stock
—
Retained
Earnings
$11,375,000
Total
$17,135,000
Issued 30,000 shares
of common stock
1,500,000
Purchased 12,000 shares
3,780,000
3,780,000
Net income
(276,000)
(276,000)
Dividends
Balance, Dec. 31, 2014
(552,000)
$(552,000)
as treasury stock
$6,000,000
$14,879,000
$21,587,000
$1,260,000
$(552,000)
Assets
Liabilities
Stockholders’
Equity
0
0
0
0
0
0
0
0
0
+
0
–
–
–
0
Ex. 13–20
a.
b.
160,000 shares (40,000 × 4)
$75 per share ($300 ÷ 4)
Ex. 13–21
(1) Authorizing and issuing stock
certificates in a stock split
(2) Declaring a stock dividend
(3) Issuing stock certificates for
the stock dividend declared
in (2)
(4) Declaring a cash dividend
(5) Paying the cash dividend
declared in (4)
Ex. 13–22
Jan.
Apr.
8 No entry required. The stockholders’ ledger would be revised to
record the increased number of shares held by each stockholder.
30 Cash Dividends {[(18,000 shares × $0.75) +
(150,000 shares × $0.28)] = $13,500 + $42,000 = $55,500}
Cash Dividends Payable
July
Oct.
Dec.
1 Cash Dividends Payable
Cash
55,500
55,500
55,500
55,500
31 Cash Dividends {[(18,000 shares × $0.75) +
(150,000 shares × $0.14)] = $13,500 + $21,000 = $34,500}
Cash Dividends Payable
34,500
31 Stock Dividends [(150,000 shares × 5% × $52) = $390,000]
Stock Dividends Distributable (7,500 shares × $40)
Paid-In Capital in Excess of Par—Common Stock
[7,500 shares × ($52 – $40)]
390,000
31 Cash Dividends Payable
Cash
Earnings per Share
=
Earnings per Share
=
Earnings per Share
300,000
90,000
34,500
34,500
31 Stock Dividends Distributable
Common Stock
Ex. 13–23
34,500
300,000
300,000
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$316,000 – ($1.60 × 15,000 shares)
40,000 shares
= $7.30 per share
13-20
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 13
Corporations: Organization, Stock Transactions, and Dividends
Ex. 13–24
a.
Earnings per Share =
Year 3 Earnings per Share =
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$1,105 – $14
382 shares
= $2.86 per share
Year 2 Earnings per Share =
$1,208 – $14
368 shares
= $3.24 per share
Year 1 Earnings per Share =
$1,312 – $14
357 shares
= $3.64 per share
b.
Year 3
Year 2
Year 1
Earnings per share…………………………………………
Growth as a percent of Year 1 (base year)………………
$2.86
79%
$3.24
89%
$3.64
100%
Net income……………………………………………………
Growth as a percent of Year 1 (base year)………………
$1,105
84%
$1,208
92%
$1,312
100%
Net income has declined over the three-year period. Year 2 net income declined 8%
(100% – 92%) of Year 1, while Year 3 earnings declined 16% (100% – 84%) of Year 1.
The decline in earnings per share is slightly more than the decline in earnings.
Year 2 earnings per share declined 11% (100% – 89%) of Year 1, while Year 3
earnings per share declined 21% (100% – 79%) of Year 1.
13-21
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Ex. 13–25
a. OfficeMax:
Earnings per Share =
Earnings per Share =
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$71,155,000 – $2,527,000
84,908,000 shares
= $0.81 per share
Staples:
Earnings per Share =
Earnings per Share =
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$881,948,000
715,596,000 shares
= $1.23 per share
b.
Staples’ net income of $881,948,000 is much greater than OfficeMax’s net
income of $71,155,0000. This is because Staples is a much larger business than
OfficeMax. Staples also has over 8 times more shares of common stock
outstanding than does OfficeMax. Regardless of these size differences, however,
earnings per share can be used to compare their relative earnings.
As shown above, Staples has a better earnings per share of $1.23 than does
OfficeMax, which has earnings per share of $0.81.
PROBLEMS
Prob. 13–1A
1.
Year
Total
Dividends
2009…………… $ 18,000
2010…………
40,000
2011……………
80,000
2012…………
120,000
2013…………… 150,000
2014…………
228,000
Preferred Dividends
Per
Total
Share
$18,000
40,000
32,000*
30,000
30,000
30,000
$0.45
1.00
0.80
0.75
0.75
0.75
Common Dividends
Per
Total
Share
$
0
0
48,000
90,000
120,000
198,000
$4.50
* $32,000 =
(2010 dividends in arrears of $2,000) + (2011 current dividend of $30,000)
2.
Average annual dividend for preferred: $0.75 per share ($4.50 ÷ 6)
Average annual dividend for common: $0.38 per share ($2.28 ÷ 6)
3.
a.
b.
0.60% ($0.75 ÷ $125)
5.0% ($0.38 ÷ $7.60)
$0.00
0.00
0.24
0.45
0.60
0.99
$2.28
Prob. 13–2A
May
11 Building
Land
Common Stock (125,000 shares × $35)
Paid-In Capital in Excess of Par—
Common Stock [125,000 shares × ($39 – $35)]
3,375,000
1,500,000
20 Cash (40,000 shares × $52)
Preferred Stock (40,000 shares × $50)
Paid-In Capital in Excess of Par—
Preferred Stock [40,000 shares × ($52 – $50)]
2,080,000
31 Cash
Mortgage Note Payable
4,000,000
4,375,000
500,000
2,000,000
80,000
4,000,000
Prob. 13–3A
a.
b.
c.
d.
e.
f.
g.
Cash (360,000 shares × $22)
Common Stock (360,000 shares × $12)
Paid-In Capital in Excess of Par—Common
Stock [360,000 shares × ($22 – $12)]
7,920,000
Cash (14,000 shares × $43)
Preferred Stock (14,000 shares × $40)
Paid-In Capital in Excess of Par—Preferred
Stock [14,000 shares × ($43 – $40)]
602,000
4,320,000
3,600,000
560,000
42,000
Treasury Stock (66,000 shares × $18)
Cash
1,188,000
Cash (51,000 shares × $21)
Treasury Stock (51,000 shares × $18)
Paid-In Capital from Sale of Treasury Stock
[51,000 shares × ($21 – $18)]
1,071,000
Cash (10,000 shares × $16)
Paid-In Capital from Sale of Treasury Stock
[10,000 shares × ($18 – $16)]
Treasury Stock (10,000 shares × $18)
1,188,000
918,000
153,000
160,000
20,000
180,000
Cash Dividends {(59,000 shares × $0.40) + [(1,250,000 shares +
360,000 shares – 66,000 shares + 51,000 shares +
10,000 shares) × 0.03]}
Cash Dividends Payable
71,750
Cash Dividends Payable
Cash
71,750
71,750
71,750