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Ex. 11.4
a.
Stockholders equity:
8% cumulative preferred stock, $100 par value,
5,000 shares authorized, 2,500 shares issued and outst
Common stock, $2 stated value, 100,000 shares authorized,
70,000 shares issued and outstanding
Additional paid-in capital:
Preferred stock
Common stock
Total paid-in capital
Retained earnings
Total stockholders equity
250,000
140,000
7,500
770,000
$ 1,167,500
475,000
$ 1,642,500
b.
No. The market value of a corporations stock has no direct effect on the amount in
the financial statements. Capital stock is recorded at the amount for which it was
originally issued.
a.
b.
636,000
$100,000
$736,000
The stockholders equity section of the balance sheet reports no additional paid-in
capital. Thus, the preferred shares must have been issued at their respective par
values ($50 per share for the 9% cumulative preferred stock, and $100 per share
for the noncumulative preferred stock).
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Ex. 11.9
a. Feb. 10
June
Dec. 22
Treasury Stock
Cash ...
Purchased 17,000 shares of treasury
stock at $25 per share.
425,000
Cash
Treasury Stock
Additional Paid-in Capital:
Treasury Stock
Sold 6,000 shares of treasury stock, cost
$150,000, for $33 per share.
198,000
Cash
Additional Paid-in Capital: Treasury
Stock
Treasury Stock
Sold 4,000 shares of treasury stock, cost
$100,000, for $22 per share.
88,000
425,000
150,000
48,000
12,000
100,000
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Ex. 11.10
a. Had the stock been split 2-for-1, it would begin trading at approximately $40 per
share immediately after the split ($80 2 = $40).
b. Had the stock been split 4-for-1, it would begin trading at approximately $20 per
share immediately after the split ($80 4 = $20).
c. When the market price of a corporations common stock appreciates in value
significantly, as it had in the case of Fido Corporation, it may become too
expensive for many investors. Thus, the decision to split the companys stock
was probably made with the intent of making it more affordable to investors.
Ex. 11.11
a. Companies sometimes purchase shares of their own common stock to help boost
the market price per share. This practice is not generally considered unethical,
given that information pertaining to the purchase is fully disclosed in the
companys financial statements. Furthermore, if the company acquires a
significantly large amount of its outstanding stock, the event would be reported
in the financial press.
Ex. 11.12
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Ex. 11.13
6,600,000
4,400,000
575,000
5,500,000
1,100,000
4,000,000
400,000
575,000
b. Stockholders' Equity:
Preferred stock, 6%, $100 par value, 60,000 shares authorized,
40,000 shares issued and outstanding
$4,000,000
400,000
1,100,000
$11,000,000
(575000)
$10,425,000
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20 Minutes, Easy
Stockholders' equity
8% cumulative preferred stock, $100 par value,
authorized 100,000 shares, issued and outstanding
10,000 shares
Common stock, $1 par value, authorized 500,000 shares
issued and outstanding 170,000 shares
Additional paid-in capital: Common stock
Total paid-in capital
Retained earnings*
Total stockholders' equity
*Computation of retained earnings at December 31, 2013:
Net income for the four-year period 2010-2013
Less: Preferred dividends ($80,000 per year for four years) $
Common dividends ($0.75 x 170,000 shares x 4 years)
Retained earnings, December 31, 2013
b.
1,000,000
$
$
170,000
2,380,000
3,550,000
555,000
4,105,000
1,385,000
830,000
555,000
320,000
510,000
There are no dividends in arrears at December 31, 2013. We know this because common
dividends were paid in each of the four years that the company was in existence. Common
shareholders could not have received dividends in each year of the companys existence had
any dividends been in arrears on the preferred stock.
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PROBLEM 11.2A
20 Minutes, Easy
MCMINN PUBLICATIONS
Partial Balance Sheet
December 31, 2013
Stockholders' equity
10% cumulative preferred stock, $100 par value,
authorized, issued, and outstanding 20,000 shares
Common stock, $1 par value, authorized 1 million shares,
issued and outstanding 300,000 shares
Additional paid-in capital: common stock
Total paid-in capital
Retained earnings*
Total stockholders' equity
*Computation of retained earnings at December 31, 2013:
Net income for the five-year period 2008-2012
Less: Preferred dividends ($200,000 x 5 years)
Common dividends ($1 x 300,000 shares x 5 years)
Retained earnings, December 2012
Less: Net loss of 2013
Retained earnings, December 31, 2013
2,000,000
$
$
300,000
5,700,000
8,000,000
235,000
8,235,000
4,560,000
$ 1,000,000
1,500,000
$
$
2,500,000
2,060,000
1,825,000
235,000
b.
c.
No. Dividends do not represent a liability of the corporation until they are declared by the board
of directors.
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35 Minutes, Medium
PROBLEM 11.4A
SHARNES COMMUNICATIONS, INC.
a.
General Journal
2013
Jan
6
Cash
280,000
Common Stock
Additional Paid-in Capital: Common Stock
Issued 20,000 shares of $2 par value common
stock
at $14 per share.
7 Organization Costs Expense
Common Stock
Additional Paid-in Capital: Common Stock
Issued 500 shares of common stock to Barnes in
exchange for services relating to formation of the
corporation. Implied issuance price ($7,000 500
shares) = $14 per share.
12 Cash
40,000
240,000
7,000
1,000
6,000
250,000
4 Land
250,000
225,000
Common Stock
Additional Paid-in Capital: Common Stock
Issued 15,000 shares of common stock in
exchange
for land valued at $225,000 (15,000 shares x $15).
Nov
Dec
30,000
195,000
25,000
20 Dividends Payable
Cash
To record payment of dividend declared Nov. 15.
25,000
31 Income Summary
Retained Earnings
To close the Income Summary account for the
year.
31 Retained Earnings
Dividends (preferred stock)
To close the Dividends account.
25,000
25,000
147,200
147,200
25,000
25,000
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b.
PROBLEM 11.4A
SHARNES COMMUNICATIONS, INC. (concluded)
SHARNES COMMUNICATIONS, INC.
Partial Balance Sheet
December 31, 20xx___
Stockholders' equity
10% cumulative preferred stock, $100 par, authorized
50,000 shares, issued and outstanding 2,500 shares
Common stock, $2 par, authorized 400,000 shares,
issued and outstanding 35,500 shares
Additional paid-in capital: Common stock
Total paid-in capital
Retained earnings*
Total stockholders' equity
*Computation of retained earnings at December 31, 20xx:
Retained earnings at January 1, 20xx
Add: Net income in 20xx
Less: Preferred dividends in 20xx
Retained earnings at December 31, 20xx.
250,000
71,000
441,000
762,000
122,200
884,200
$
$
147,200
(25,000)
122,200
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McGraw-Hill Education.
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McGraw-Hill Education.