Solution manual accounting 25th editon warren chapter 13

May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part... PRACTICE EXERCISESPE 13–1A Paid-In Capital in Excess of Stated Value— Paid-In

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 No change.

b Total equity is the same.

5 a Current liability

b Stockholders’ equity

6 a It has no effect on revenue or expense.

b It reduces stockholders’ equity by $3,000,000.

7 a It has no effect on revenue.

b 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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PRACTICE EXERCISES

PE 13–1A

Paid-In Capital in Excess of Stated Value—

Paid-In Capital in Excess of Par—

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

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PE 13–2B

Paid-In Capital in Excess of Par—

PE 13–3A

Oct 15 No entry required.

PE 13–3B

Mar 18 No entry required.

PE 13–4A

Feb 15 Stock Dividends (250,000 shares × 2% × $52) 260,000

Stock Dividends Distributable (5,000 shares × $40) 200,000 Paid-In Capital in Excess of Par—

Common Stock [$5,000 shares × ($52 – $40)] 60,000 Mar 27 No entry required.

PE 13–4B

June 8 Stock Dividends (820,000 shares × 5% × $63) 2,583,000

Stock Dividends Distributable (41,000 shares × $35) 1,435,000 Paid-In Capital in Excess of Par—

Common Stock [41,000 shares × ($63 – $35)] 1,148,000 July 13 No entry required.

PE 13–5A

Jan 31 Treasury Stock (22,500 shares × $31) 697,500

Paid-In Capital from Sale of Treasury Stock [12,800 shares × ($40 – $31)] 115,200

Paid-In Capital from Sale of

Treasury Stock [9,700 shares × ($31 – $28)] 29,100

PE 13–5B

Paid-In Capital from Sale of

Paid-In Capital from Sale of

PE 13–6A

Stockholders’ Equity Paid-in capital:

Common stock, $60 par (250,000 shares

PE 13–6B

Stockholders’ Equity Paid-in capital:

Common stock, $120 par (500,000 shares

PE 13–7B

NORIC CRUISES INC.

Retained Earnings Statement For the Year Ended October 31, 2014

PE 13–8A

Net Income – Preferred Dividends

a 2014: Earnings per Share = Avg Number of Common Shares Outstanding

= $5.45

2013: Earnings per Share = Net Income – Preferred Dividends

Avg Number of Common Shares Outstanding

= $5.60

b The decrease in the earnings per share from $5.60 to $5.45 indicates an

unfavorable trend in the company’s profitability.

= $21.18

2013: Earnings per Share = Net Income – Preferred Dividends

Avg Number of Common Shares Outstanding

= $18.60

b The increase in the earnings per share from $18.60 to $21.18 indicates a

favorable trend in the company’s profitability.

Ex 13–1

a Total dividend declared……… $24,000 $81,000 $92,000 $139,000

Preferred dividend (current)…… … $24,000 $51,000 * $54,000 $ 54,000

Preferred shares outstanding…… ÷ 30,000 ÷ 30,000 ÷ 30,000 ÷ 30,000

* $51,000 = $81,000 – $30,000

Dividend for common shares

Ex 13–2

1st Year 2nd Year 3rd Year 4th Year

Preferred dividend (current)……… $36,000 $44,000* $50,000 $ 50,000

Preferred dividend in arrears…… — 14,000 6,000 —

b Total preferred dividends…………

Preferred shares outstanding……

* $44,000 = $58,000 – $14,000

Dividend for common shares

Paid-In Capital in Excess of Par—

Common Stock [120,000 shares × ($40 – $36)] 480,000

Paid-In Capital in Excess of Par—

Preferred Stock [50,000 shares × ($9 – $8)] 50,000

Paid-In Capital in Excess of Stated Value—

Common Stock [500,000 shares × ($3 – $1)] 1,000,000

Paid-In Capital in Excess of Par—

Preferred Stock [5,000 shares × ($200 – $180)] 100,000

Paid-In Capital in Excess of Par—

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

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Paid-In Capital in Excess of Par—

Paid-In Capital in Excess of Par—

Paid-In Capital in Excess of Par—

Common Stock [30,000 shares × ($29.50 – $25.00)] 135,000

Paid-In Capital in Excess of Par—

Preferred Stock [8,500 shares × ($131 – $120)] 93,500

Ex 13–9

Aug 9 No entry required.

Paid-In Capital in Excess of Par—

Ex 13–11

a.

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.

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.

Paid-In Capital from Sale of Treasury

Paid-In Capital from Sale of Treasury

Paid-In Capital from Sale of Treasury

Paid-In Capital from Sale of Treasury

Ex 13–13

a.

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.

Paid-In Capital from Sale of Treasury

Paid-In Capital from Sale of Treasury

Common stock, no par, $14 stated

value (375,000 shares authorized,

Deduct treasury stock

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

Ex 13–14

Ex 13–16

Stockholders’ Equity Paid-in capital:

Preferred 1% stock, $150 par

(50,000 shares authorized,

Common stock, $36 par

(300,000 shares authorized,

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

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

Common stock, $20 par (1,000,000 shares

* $96,700,000 – $300,000 Since the organizing costs should have been expensed, the retained earnings should be $300,000 less.

$40 par

Paid-In Capital in Excess

of Par

Treasury Stock

(3) Issuing stock certificates for

the stock dividend declared

(5) Paying the cash dividend

Ex 13–22

Jan 8 No entry required The stockholders’ ledger would be revised to

record the increased number of shares held by each stockholder.

(150,000 shares × $0.28)] = $13,500 + $42,000 = $55,500}

(150,000 shares × $0.14)] = $13,500 + $21,000 = $34,500}

31 Stock Dividends [(150,000 shares × 5% × $52) = $390,000] 390,000

Earnings per Share =

Net Income – Preferred Dividends Avg Number of Common Shares Outstanding

Earnings per Share =

$316,000 – ($1.60 × 15,000 shares)

40,000 shares Earnings per Share = $7.30 per share

13-20

Earnings per share……… $2.86 $3.24 $3.64 Growth as a percent of Year 1 (base year)……… 79% 89% 100% Net income……… $1,105 $1,208 $1,312 Growth as a percent of Year 1 (base year)……… 84% 92% 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.

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

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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 = Avg Number of Common Shares Outstanding Net Income – Preferred Dividends Earnings per Share =

$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.

Prob 13–1A

1.

Year

* $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 0.60% ($0.75 ÷ $125)

b 5.0% ($0.38 ÷ $7.60)

Prob 13–2A

Paid-In Capital in Excess of Par—

Paid-In Capital in Excess of Par—

Paid-In Capital in Excess of Par—Common

Paid-In Capital in Excess of Par—Preferred

[51,000 shares × ($21 – $18)]

Paid-In Capital from Sale of Treasury Stock 20,000

[10,000 shares × ($18 – $16)]

Cash Dividends {(59,000 shares × $0.40) + [(1,250,000 shares + 71,750

360,000 shares – 66,000 shares + 51,000 shares +

10,000 shares) × 0.03]}

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Prob 13–4A (Continued)

2.

Jan 22 Cash Dividends Payable [(375,000 shares – 25,000 shares) × $0.08] 28,000

Paid-In Capital in Excess of Stated Value—Common Stock 300,000 [75,000 shares × ($24 – $20)]

[25,000 shares × ($26 – $18)]

July 5 Stock Dividends [(375,000 shares + 75,000 shares) × 4% × $25] 450,000

Stock Dividends Distributable (18,000 shares × $20) 360,000 Paid-In Capital in Excess of Stated Value—Common Stock 90,000 [18,000 shares × ($25 – $20)]

Prob 13–4A (Concluded)

3.

MORROW ENTERPRISES INC.

Retained Earnings Statement For the Year Ended December 31, 2014

4.

Stockholders’ Equity Paid-in capital:

Common stock, $20 stated value (500,000 shares

13-27

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Prob 13–5A

Jan 9 No entry required The stockholders’ ledger would be revised to

record the increased number of shares held by each stockholder and new par value.

May 1 Cash Dividends {(75,000 shares × $0.80) + [(1,200,000 shares – 199,200

40,000 shares) + $0.12]}

Paid-In Capital from Sale of Treasury

Oct 1 Cash Dividends {(75,000 shares × $0.80) + [(1,200,000 shares – 202,800

10,000 shares) × $0.12]}

1 Stock Dividends [(1,200,000 shares – 10,000 shares) × 2% × $36] 856,800

Stock Dividends Distributable (23,800 shares × $25) 595,000 Paid-In Capital in Excess of Par—

1 Preferred Dividends Common Dividends

2 Average annual dividend for preferred: $1.80 per share ($10.80 ÷ 6)

Average annual dividend for common: $0.40 per share ($2.40 ÷ 6)

Paid-In Capital in Excess of Par—

Preferred Stock [20,000 shares × ($126 – $120)] 120,000

Paid-In Capital in Excess of Par—

Preferred Stock [300,000 shares × ($16.50 – $15.00)] 450,000

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

Prob 13–30

13-29

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[55,000 shares × ($11 – $8)]

Paid-In Capital in Excess of Par—Preferred

Paid-In Capital in Excess of Par—Common

Paid-In Capital from Sale of Treasury Stock 9,000

[18,000 shares × ($8.00 – $7.50)]

Cash Dividends {(80,000 shares × $1.60) + [(1,750,000 shares – 234,775

87,500 shares + 55,000 shares + 400,000 shares +

18,000 shares) × $0.05]}

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

Prob 13–3B

1 and 2 Common Stock

S t o c k D i v i d e n d s

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

Prob 13–4B

13-32

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Prob 13–4B (Continued)

2.

Jan 15 Cash Dividends Payable [(620,000 shares – 48,000 shares) × $0.06] 34,320

[48,000 shares × ($6.75 – $6.00)]

Paid-In Capital in Excess of Stated Value—Common Stock 600,000 [200,000 shares × ($8 – $5)]

June 14 Stock Dividends [(620,000 shares + 200,000 shares) × 3% × $7.50] 184,500

Stock Dividends Distributable (24,600 shares × $5) 123,000 Paid-In Capital in Excess of Stated Value—Common Stock 61,500 [24,600 shares × ($7.50 – $5.00)]

Prob 13–4B (Concluded)

NAV-GO ENTERPRISES INC.

Retained Earnings Statement For the Year Ended December 31, 2014

4.

Stockholders’ Equity Paid-in capital:

Common stock, $5 stated value (900,000 shares

CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends

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Prob 13–5B

Jan 15 No entry required The stockholders’ ledger would be revised to record the increased

number of shares held by each stockholder and new par value.

Mar 1 Cash Dividends [(100,000 shares × $0.25) + (800,000 shares × $0.07)] 81,000

Paid-In Capital from Sale of Treasury

[(800,000 shares – 60,000 shares + 40,000 shares) × $0.09]}

1 Stock Dividends [(800,000 shares – 60,000 shares + 40,000 shares) × 312,000

1% × $40]

Paid-In Capital in Excess of Par—