Chapter 11 Solutions

Chapter 11 - Solutions to Exercises - Series A

SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 11

EXERCISE 11-1A

TransactionsCash Acquired from Owner

$60,000

Revenues 40,000Expenses 19,300Withdrawals 5,000

Mark Pruitt Sole ProprietorshipFinancial Statements

For the Year Ended December 31, 2011

Income Statement

Revenues $40,000

Expenses (19,300)

Net Income $20,700

Capital Statement

Beginning Capital Balance $ -0-

Plus: Capital Acquired from Owner

60,000

Plus: Net Income 20,700

Less: Withdrawal by Owner (5,000)

Ending Capital Balance $75,700

11-8


EXERCISE 11-1A (cont.)

Mark Pruitt Sole ProprietorshipFinancial Statements

Balance SheetAs of December 31, 2011

AssetsCash $75,700

Total Assets $75,700

Liabilities $ -0-

EquityPruitt, Capital 75,700

Total Liabilities and Equity $75,700

Statement of Cash FlowsFor the Year Ended December 31, 2011

Cash Flows From Operating Activities:

Inflow from Revenues $40,000Outflow for Expenses (19,300)

Net Cash Flow from Operating Activities

$20,700

Cash Flows From Investing Activities

-0-

Cash Flows From Financing Activities:

Inflow from Owner $60,000Outflow for Owner Withdrawals (5,000)

Net Cash Flow from Financing Activities

55,000

Net Change in Cash 75,700

11-9


Plus: Beginning Cash Balance -0-Ending Cash Balance $75,700

11-10


EXERCISE 11-2A

Transactions:Cash Contributions

J. Harris $ 56,000

40%

P. Berryhill 84,000 60%Total $140,00

0100%

Revenues $ 65,000

Expenses 32,000Harris Withdrawal 2,000Berryhill Withdrawal 3,000

HB PartnershipFinancial Statements


Income Statement

Revenues $65,000

Expenses (32,000)

Net Income $33,000

Capital Statement


Plus: Capital Acquired from Owners

140,000


Less: Withdrawals by Owners (5,000)


11-11



Prepared for the instructor’s use:

Analysis of Capital Accounts:

Harris Berryhill TotalBeginning Capital Balance

$ -0-

$ -0- $ -0-

Investments 56,000 84,000 140,000Net Income 33,000

J. Harris 40% 13,200P. Berryhill 60% 19,800

Withdrawals (2,000) (3,000) (5,000)Ending Capital Balances $67,20

0$100,80

0$168,00

0

11-12



HB PartnershipFinancial Statements


AssetsCash $168,00

0Total Assets $168,00

0

Liabilities $ -0-

EquityJ. Harris, Capital $ 67,200P. Berryhill, Capital 100,800

Total Equity 168,000




Inflow from Revenues $ 65,000

Outflow for Expenses (32,000)Net Cash Flow from Operating Activities

$33,000


-0-


Inflow from Partners $140,00

11-13


0Outflow for Partners’

Withdrawals(5,000)


135,000

Net Change in Cash 168,000Plus: Beginning Cash Balance -0-Ending Cash Balance $168,00

0

11-14


EXERCISE 11-3A

Transactions:Issued 5,000 shares of $10 par stock @ $18

$90,000

Revenues 63,000Expenses 41,000Dividends Paid 4,000

Morris CorporationFinancial Statements


Income Statement

Revenues $63,000

Expenses (41,000)

Net Income $22,000

Statement of Changes in Stockholders’ Equity

Beginning Common Stock $ -0-Plus: Issuance of Common Stock

90,000

Ending Common Stock $ 90,000

Beginning Retained Earnings $ -0-Plus: Net Income 22,000Less: Dividends (4,000)Ending Retained Earnings 18,000

Total Stockholders’ Equity $108,000

11-15



Morris CorporationFinancial Statements


AssetsCash $108,000


Liabilities $ -0-

Stockholders’ EquityCommon Stock, $10 par value,5,000 shares issued and

outstanding$ 50,000

Paid-In Capital in Excess of Par 40,000Total Paid-In Capital 90,000

Retained Earnings 18,000

Total Liabilities and Stockholders’ Equity

$108,000





$ 22,000


-0-


Inflow from Issue of Stock $90,000Outflow for Dividends (4,000)

Net Cash Flow from Financing 86,000

11-16


Activities


11-17


EXERCISE 11-4Aa.

Balance Sheet Income Statement Stmt. ofEvent

Assets = Liab

+ Stkholders’ Equity

Rev.

Exp.

= Net Inc.

Cash Flow

Cash = + C. Stk. + PIC Exc.

3/1120,000

= NA + 50,000 + 70,000 NA NA = NA 120,000 FA

5/2400,000

= NA + 100,000

+ 300,000

NA NA = NA 400,000 FA

b.Common Stock:

10,000 shares x $5= $ 50,00020,000 shares x $5= 100,000

Total $150,000

c.Paid-In Capital in Excess of Par

10,000 shares x ($12 $5)=

$ 70,000

20,000 shares x ($20 $5)=

300,000

Total $370,000

d. Total Paid-In Capital:Common Stock $150,000Paid-In Capital in Excess of Par 370,000Total $520,000

e. Total Assets: Cash $520,000

11-18


f.General Journal

Date

Account Titles Debit Credit

3/1 Cash 120,000Common Stock 50,000Paid-In Capital in Excess of

Par70,000

5/2 Cash 400,000Common Stock 100,000Paid-In Capital in Excess of

Par300,000

11-19


EXERCISE 11-5Aa.

General Journal

Event


1. Cash (20,000 x $15) 300,000Common Stock, $10 par 200,000Paid-In Capital in Excess of

Par, CS100,000

2. Cash (10,000 x $30) 300,000Preferred Stock, $25 stated

value250,000

Paid-In Capital in Excess of SV, PS

50,000

3. Cash (50,000 x $18) 900,000Common Stock, $10 par 500,000Paid-In Capital in Excess of

Par, CS400,000

b.Stockholders’ Equity:

Preferred Stock, $25 stated value, 4% cumulative class A, 50,000 shares authorized, 10,000 shares issued and outstanding

$ 250,000

Common Stock, $10 par value, 400,000 shares authorized, 70,000 shares issued and outstanding

700,000

Paid-In Capital in Excess of SV, Preferred Stock

50,000

Paid-In Capital in Excess of Par, Common Stock

500,000

Retained Earnings -0-

Total Stockholders’ Equity $1,500,000

11-20


11-21


EXERCISE 11-6A

a.

Balance Sheet Income Statement Stmt. ofEven

tAssets = Stockholders’ Equity Rev

. Exp

.= Net

Inc.Cash Flow

Cash =Pref. Stock +

No-ParC.

Stock+

PIC in Excess

1.100,000

= NA + 100,000

+ NA NA NA = NA 100,000 FA

2.120,000

=100,000

+ NA + 20,000

NA NA = NA 120,000 FA

b.General Journal

Event


1. Cash 100,000Common Stock, No Par 100,000

2. Cash 120,000Preferred Stock, $50 par

value100,000

Paid-In Capital in Excess of Par, PS

20,000

11-22


EXERCISE 11-7A

a. 2,500 shares x $12 market value per share of stock = $30,000

b.

Balance Sheet Income Statement Stmt. ofEvent

Assets = Stockholders’ Equity

Rev.

Exp.

= Net Inc.

Cash Flows

Cash + Van =Com. Stk. + PIC

Exc.

1. 60,000 + NA = 50,0001 + 10,000 NA NA = NA 60,000 FA2. NA + 30,00

0= 25,0002 + 5,000 NA NA = NA NA

15,000 x $10 = $50,00022,500 x $10 = $25,000

c.Even

tAccount Titles Debit Credit

1. Cash 60,000Common Stock 50,000Paid In Capital in Excess of

Par, CS10,000

2. Van (2,500 shs. x $12) 30,000Common Stock 25,000Paid in Capital in Excess of

Par, CS5,000

11-23


EXERCISE 11-8Aa.

Graves CorporationGeneral Journal

Date Account Titles Debit Credit

1. Treasury Stock (2,000 x $40) 80,000Cash 80,000

2. Cash (1,200 x $48) 57,600Treasury Stock (1,200 x $40) 48,000Paid-In Capital in Excess of

Cost, TS9,600

b.Treasury Stock

1. 80,000 2. 48,000Bal. 32,000

11-24


EXERCISE 11-9A

a. & b.Common Stock Issued Outstandin

g

Beginning Number of Shares 2,000 2,000Issued This Period 1,000 1,000Repurchased as Treasury Stock

(200)

Resold Treasury Stock 50Ending Number of Shares (b)

3,000(a) 2,850

c.Smoot Corporation

General Journal


1. Cash (1,000 x $28) 28,000Common Stock, $10 par 10,000Paid-in Capital in Excess of Par,

CS18,000

2. Treasury Stock (200 x $25) 5,000Cash 5,000

3. Cash (50 x $26) 1,300Treasury Stock (50 x $25) 1,250Paid-In Capital in Excess of Cost,

TS50

Cash Common Stock PIC in Exc. of Par, CS

Bal. not given

Bal.20,000

Bal. 15,000

1. 28,000 2. 5,000 1. 10,000 1. 18,0003. 1,300 Bal.

30,000Bal. 33,000

Bal. unknown

11-25


Treasury StockPIC in Excess of

Cost, TS2. 5,000 3. 1,250 3. 50Bal.3,750 Bal. 50

11-26



d.Stockholders’ Equity

Common Stock, $10 par value, 10,000 shares authorized, 3,000 shares issued, and 2,850 shares outstanding

$30,000

Paid-In Capital in Excess of Par, Common

33,000

Paid-In Capital in Excess of Cost, TS

50

Total Paid-In Capital $63,050


Less: Treasury Stock (3,750)


11-27


EXERCISE 11-10Aa.

Balance Sheet Income Statement Statement

Date

Assets = Liab. +Com. Stk. + Ret.

Ear.Rev Exp

.= Net

Inc.

ofCash Flows

10/1 NA =60,000 + NA + (60,000)

NA NA = NA NA

11/20

NA = NA + NA + NA NA NA = NA NA

12/30

(60,000)

= (60,000)

+ NA + NA NA NA = NA (60,000) FA

b.Smart Corporation

General Journal


10/1/11 Dividends 60,000Dividends Payable 60,000

11/20/11

No Entry

12/30/11

Dividends Payable 60,000

Cash 60,000

12/31/11

Retained Earnings (closing entry)

60,000

Dividends 60,000

Note: Closing entry is not required in the problem.

11-28


EXERCISE 11-11A

Computation of Preferred Dividends:

Par x Dividend %

=Dividend per Share

x

Number of Shares

Outstanding

=

Total Preferred

Dividends for Year

$50 x 5% = $2.50 x 5,000 = $12,500

a. Dividend arrearage as of January 1, 2012: $12,500 (one year)

b.Dist. to

ShareholdersAmount Preferre

dCommo

n

Total Dividend Declared

$40,000

2011 Arrearage (12,500) $12,5002012 Preferred Dividends

(12,500) 12,500

Available for Common Shs.

15,000

Distributed to Common

(15,000) $15,000

Total Distribution $25,000 $15,000

11-29


EXERCISE 11-12A

a.

Computation of Dividends to Be Paid:

Preferred Stock

$100 par value x 5% x 5,000 shares=

$25,000

Common Stock

$1 x 100,000 shares = 100,000

Total Dividend

$125,000

b.Date Account Titles Debit Credit

5/10/11 Dividends 125,000Dividends Payable 125,000

5/30/11 No Entry

6/15/11 Dividends Payable 125,000Cash 125,000

12/31/11


(Closing Entry)

Dividends 125,000


11-30


EXERCISE 11-13A

a. Distribution of Dividend:

Distributed to Shareholders

Preferred Common

Total Dividend Declared

$100,000

Preferred Arrearage* (40,000) $40,000Current Preferred Dividend*

(40,000) 40,000

Available for Common 20,000Distributed to Common

(20,000) $20,000

Total $80,000 $20,000

*$100 x 4% x 10,000 Shares = $40,000

b.Wu Corp.

General Journal for 2011


Feb. 1 Dividends 100,000Dividends Payable 100,000

Mar. 10

No Entry

Mar. 31


Cash 100,000

Closing EntryDec. 31


Dividends 100,000


11-31


11-32


EXERCISE 11-14A

a. (30,000 shares x .04) = 1,200 shares; 1,200 shares x $25 = $30,000

b.

Balance Sheet Income Statement Stmt. of

Assets =Liab + Stockholders’ Equity Rev. Exp. =Net Inc. Cash Flows

Com. Stk.

+ PIC. Ex.

+ Ret. Ear.

NA = NA + 12,000 +18,000 +(30,000)

NA NA = NA NA

c.General Journal


Retained Earnings 30,000Common Stock, $10 par 12,000Paid-In Capital in Excess of

Par, CS18,000

11-33


EXERCISE 11-15A

a. No formal entry would be made in the accounting records. A memo entry would indicate the number of shares had doubled and the par value had been reduced by one-half.

b. 300,000 shares x 2 = 600,000 total shares outstanding

$10 par value 2 = $5 new par value

c. Theoretically, the market value per share would be reduced to $90 ($180 2) after the split. However, if this is perceived as a good move by the company, the price per share may not fall that far, ending at something over $90.

11-34


EXERCISE 11-16A

a. The price per share of Mighty Drugs should increase substantially. This increase is a result of the expectation of future profits. The approval of the new drug signals that profits should be substantially higher in the future.

b. The balance sheet will not be affected by the announcements.

c. The income statement will not be affected when the announcements are made. Only when revenues increase will net income be affected.

d. The statement of cash flows will not be affected by the announcements.

11-35


EXERCISE 11-17A

Computation of Price Earnings Ratio:

1. Compute Earnings per Share:Net Income Number of Common Shares Outstanding

2. Compute Price Earnings Ratio:Selling Price per Share Earnings per Share

a. Carabella, Inc.:

Earnings per Share (EPS):Net Income ÷ Common Shs. Outst. = EPS $120,000 ÷ 50,000 = $2.40

Price/Earnings Ratio:Selling Price/Share ÷ Earnings per Share = P/E Ratio

$36.00 ÷ $2.40 = 15

Yamhill, Inc.:

Earnings Per Share (EPS):Net Income ÷ Common Shs. Outst. = EPS$140,000 ÷ 50,000 = 2.80

Price/Earnings Ratio:Selling Price/Share ÷ Earnings per Share = P/E Ratio

$31.00 ÷ $2.80 = 11

b. Carabella appears to have greater potential for growth. Investors are willing to pay more for today’s earnings because they believe that tomorrow’s earnings will be higher.

11-36


EXERCISE 11-18A

The memo should contain a defination of the price-earnings ratio. It is one of the most commonly reported measures of a company’s value. It is computed by dividing the market price per share by the earnings per share. A high P/E ratio may mean that investors believe that a company’s earnings are going to grow rapidly. A high-growth company will generaly have a higher P/E ratio than a low growth company.

11-37


SOLUTIONS TO PROBLEMS - SERIES A - CHAPTER 11

PROBLEM 11-19A

TransactionsCash Acquired from Owners

$160,000

Revenues 90,000Expenses 65,000Withdrawals/Distributions

10,000

a. Sole ProprietorshipJa-San Company

Financial StatementsFor the Year Ended December 31, 2011

Income Statement

Revenues $ 90,000

Expenses (65,000)

Net Income $ 25,000

Capital Statement


Plus: Capital Acquired from Owner

160,000


Less: Withdrawal by Owner (10,000)


11-38


PROBLEM 11-19A a. (cont.)

Ja-San CompanyFinancial Statements


AssetsCash $175,000


Liabilities $ -0-

EquitySanford, Capital 175,000




Inflow from Revenues $ 90,000Outflow for Expenses (65,000)


$ 25,000


-0-


Inflow from Owner $160,000Outflow for Owner Withdrawals (10,000)


150,000

11-39



0

11-40


PROBLEM 11-19A (cont.)b. Partnership



Income Statement

Revenues $90,000

Expenses (65,000)

Net Income $25,000

Capital Statement


Plus: Capital Acquired from Owners

160,000


Less: Withdrawals by Owners (10,000)


Prepared for the instructor’s use:

Analysis of Capital Accounts:

James Sanders Total Beginning Capital Balance

$ -0- $ -0- $ -0-

Investments 100,000 60,000 160,000 Net Income* 10,000 15,000 25,000 Withdrawals (7,000) (3,000) (10,000) Ending Capital Balances $103,000 $72,000 $175,000

*James: $25,000 x 40% = $10,000Sanders: $25,000 x 60% = $15,000

11-41


11-42


PROBLEM 11-19A b. (cont.)



AssetsCash $175,00

0Total Assets $175,000

Liabilities $ -0-

EquityKim James, Capital 103,000Mary Sanders, Capital 72,000




Inflow from Revenues $ 90,000

Outflow for Expenses (65,000)Net Cash Flow from Operating Activities

$ 25,000


-0-


Inflow from Partners $160,000

Outflow for Partners’ (10,000)

11-43


WithdrawalsNet Cash Flow from Financing Activities

150,000


11-44


PROBLEM 11-19A (cont.)c. Corporation

Ja-San Inc.Financial Statements


Income Statement

Revenues $90,000

Expenses (65,000)

Net Income $25,000

Statement of Changes in Stockholders’ Equity

Beginning Common Stock $ -0-Plus: Issuance of Common Stock

160,000

Ending Common Stock $160,000

Beginning Retained Earnings -0-Plus: Net Income 25,000Less: Dividends (10,000)Ending Retained Earnings 15,000


11-45


PROBLEM 11-19A c. (cont.)

Ja-San Inc.Financial Statements


AssetsCash $175,000


Liabilities $ -0-

Stockholders’ EquityCommon Stock, $10 par value,10,000 shares issued and

outstanding$100,000

Paid-In Capital in Excess of Par 60,000Total Paid-In Capital 160,000


Total Liabilities and Stockholders’ Equity

$175,000





$ 25,000


-0-


Inflow from Issue of Stock 160,000Outflow for Dividends (10,000)

Net Cash Flow from Financing 150,000

11-46


Activities


11-47


PROBLEM 11-20A

Note: The memo incorporates a schedule showing the after-tax cash flows under each form of ownership and discusses LLCs.

MemoTo: Owners of Bates and AssociatesFrom: John Q CPADate: X/X/20XXRe: Forms of business ownership

As requested, this memo describes the advantages and disadvantages of the partnership versus corporate forms of business ownership.

Advantages DisadvantagesPartnership Ease of formation

Less regulation Lower effective

tax rate

Limited life Mutual agency Unlimited liability

Corporation Unlimited life Limited liability Capital easier to

acquire & ownership easily transferred

More regulation Higher effective

tax rate

The most important of these advantages and disadvantages relate to taxation and owner’s liability.

11-48


PROBLEM 11-20A (cont.)

The schedule below illustrates the after-tax cash flows under each form:

Partnership CorporationIncome before taxes

$200,000 $200,000

Tax at entity level -0 - (50,000 ) Net income distributed to owners

200,000 150,000

Less: Individual income tax (35%) (70,000 ) (52,500 )After-tax cash flow $130,000 $ 97,500 After-tax cash flow available to each investor

$130,000 5 =$26,000

$97,500 5 =$19,500

Effective tax rate($70,000 $200,000)

=35%($102,500 $200,000)

=51.25%

The corporate form limits the potential liability of owners. Creditors of partnerships may lay claim to the personal assets of the owners as payment of company debts. The corporation, as a separate legal entity, is responsible for its own debts. Owners risk only the amount of their investment.

Limited liability companies (LLCs) offer many of the benefits associated with corporate ownership, yet income is taxed like partnerships. Thus, the burden of both double taxation and personal liability for partnership debts are avoided.

11-49


PROBLEM 11-21A

a.


1. Treasury Stock (1,000 x $18) 18,000Cash 18,000

2. Cash (600 x $20) 12,000Treasury Stock (600 x $18) 10,800PIC in Excess of Cost, TS 1,200

3. Cash 64,000Service Revenue 64,000

4. Operating Expenses 38,000Cash 38,000

b.

Stockholders’ EquityCommon Stock, $10 par value, 50,000

shares authorized, 30,000 shares issued, and 29,600 shares outstanding $300,000

Paid-In Capital in Excess of ParCommon Stock

150,000

Paid-In Capital in Excess of CostTreasury Stock

1,200


Retained Earnings1 126,000Less: Treasury Stock (400 shares) (7,200)


1 Beginning Retained Earnings$100,0002011 Revenues 64,0002011 Expenses (38,000 ) Ending Retained Earnings $126,000

11-50


PROBLEM 11-22A

a.Chen Corp.

Statements Model For 2011

Balance Sheet Income Statement Statement of

Event Assets = Stockholders’ Equity Rev. Exp. = Net Inc. Cash Flows

Pfd. Stk.

+Com. Stk. +

PIC in Exc. PS +

PIC in Exc. CS +Ret.

Earn1. 600,000 NA 400,000 NA 200,000 NA NA NA NA 600,000 FA2. 255,000 250,00

0NA 5,000 NA NA NA NA NA 255,000 FA

3. (12,500)1

NA NA NA NA (12,500) NA NA NA (12,500) FA

4. NA NA 20,000 NA 20,000 (40,000)2

NA NA NA NA

5. memo

no entry3

NA NA NA NA NA NA NA NA NA

6a. 210,000 NA NA NA NA 210,000 210,000

NA 210,000 210,000 OA

6b. (140,000)

NA NA NA NA (140,000)

NA 140,000

(140,000)

(140,000) OA

Totals 912,500 = 250,000

+420,000 + 5,000 +220,000 + 17,500 210,000

140,000

= 70,000 912,500 NC

1$50 x 5% = $2.50; $2.50 x 5,000 = $12,500220,000 x 5%=1,000 shares; 1,000 shares x $40 = $40,0003Memo: 2:1 stock split reduces common’s par to $10 and increases number of shares outstanding to 42,000

11-51


Note: Entry 7, the closing entry does not affect the horizontal statements model.

11-52


PROBLEM 11-22A (cont.)b.

General Journal


1. Cash (20,000 x $30) 600,000Common Stock, $20 par 400,000Paid-in Capital in Excess of

Par, CS200,000

2. Cash (5,000 x $51) 255,000Preferred Stock, $50 par 250,000Paid-in Capital in Excess of

Par, PS5,000

3. Dividends ($50 x 5% x 5,000) 12,500Cash 12,500

4. Retained Earnings 40,000*Common Stock, $20 Par 20,000Paid-in Capital in Excess of

Par, CS20,000

5. Chen’s declaration of a 2-for-1 stock split will replace the 21,000 shares of $20 par common stock with 42,000 shares of $10 par common stock.

6a. Cash 210,000Service Revenue 210,000

6b. Operating Expenses 140,000Cash 140,000

7. Service Revenue 210,000Operating Expenses 140,000Dividends 12,500Retained Earnings 57,500

11-53


*20,000 shares x 5% = 1,000 shares; 1,000 shares x $40 per share = $40,000

11-54


PROBLEM 11-22A b. (cont.)

Chen Corp. T-Accounts

Cash Retained Earnings Dividends1. 600,000 3. 12,500 4. 40,000 7. 57,500 3. 12,500 7. 12,5002. 255,000 6b. 140,000 Bal. 17,500 Bal. -0-6a. 210,000Bal. 912,500 Service Revenue

Preferred Stock 7. 210,000 6a.210,000

2. 250,000 Bal. -0-Bal. 250,000

Operating ExpensesCommon Stock 6b.140,000 7.140,000

1. 400,000 Bal. -0-4. 20,000Bal. 420,000

PIC in Exc. of Par Pref. Stk2. 5,000Bal. 5,000

PIC in Exc. of Par Com. Stk.1. 200,0004. 20,000Bal. 220,000

11-55


PROBLEM 11-22A (cont.)c.

Stockholders’ EquityPreferred Stock, $50 par value, 5%,

5,000 shares issued and outstanding

$250,000

Common Stock, $10, par, 42,000 shares issued and outstanding 420,000

Paid-In Capital in Excess of Par, Preferred Stock

5,000

Paid-In Capital in Excess of Par, Common Stock

220,000




11-56


PROBEM 11-23A

a.General Journal


2011Jan. 2 Cash (15,000 x $7) 105,000

Common Stock (15,000 x $5)

75,000

PIC in Excess of Par, CS 30,000

Jan. 15

Cash (2,000 x $110) 220,000

Preferred Stock (2,000 x $100)

200,000

PIC in Excess of Par, PS 20,000

Feb. 14

Cash (20,000 x $9) 180,000

Common Stock (20,000 x $5)

100,000

PIC in Excess of Par, CS 80,000

Dec. 31

Cash 310,000

Service Revenue 310,000

Dec. 31

Operating Expenses 240,000

Cash 240,000

Dec. 31

Dividends [2,000 x ($100 x 6%)]

12,000


Closing Entries

Dec. 31



Dec. Retained Earnings 240,000

11-57


31Operating Expenses 240,000

Dec. 31


Dividends 12,000

11-58



General Journal


2012Jan. 31


Cash 12,000

Mar. 1 Cash (3,000 x $120) 360,000Preferred Stock, $100 par 300,000PIC in Excess of Par, PS 60,000

June 1 Treasury Stock (Common) (500 x $10)

5,000

Cash 5,000

Dec. 31

Cash 250,000


Dec. 31


Cash 175,000

Dec. 31

Dividends 47,250*


Closing Entries

Dec. 31



Dec. 31



Dec. 31


Dividends 47,250

11-59


*Preferred Stock: $100 x 6% x 5,000 shares = $30,000 Common Stock: $.50 x 34,500 shares = 17,250 Total Dividend $47,250

11-60



Lane Corporation T-Accounts for 2011

Cash Dividends Payable Retained Earnings2011 2011 20111/2 105,000 12/31

240,00012/3112,000 cl 240,000 cl 310,000

1/15 220,000 Bal. 12,000 cl 12,0002/14 180,000 Bal. 58,00012/31

310,000Bal. 575,000 Preferred Stock

1/15 200,000Bal. 200,000

Common Stock1/2 75,0002/14100,000Bal.175,000

PIC in Exc. of Par Pref. Stk.

1/15 20,000Bal. 20,000

PIC in Exc. of Par Com. Stk.

1/2 30,0002/14 80,000Bal. 110,000

Dividends12/31

12,000cl 12,000

Bal. -0-

Service Revenuecl 310,000 12/31

310,000Bal. -0-

Operating Expenses12/31

240,000cl 240,000

Bal. -0-

11-61



Lane Corporation T-Accounts for 2012

Cash Dividends Payable Retained EarningsBal. 575,000 1/31 12,000 Bal. 12,000 Bal. 58,0003/1 360,000 6/1 5,000 1/31

12,00012/3147,250 cl 175,000 cl 250,000

12/31250,000

12/31175,000

Bal. 47,250 cl 47,250

Bal. 993,000 Bal. 85,750

Preferred StockBal. 200,0003/1 300,000Bal. 500,000

Common StockBal. 175,000

PIC in Exc. of Par Pref. Stk.

Bal. 20,0003/1 60,000Bal. 80,000

PIC in Exc. of Par Com. Stk.

Bal. 110,000

Treasury Stock6/1 5,000Bal. 5,000

Dividends12/31

47,250cl 47,250

Bal. -0-

Service Revenuecl 250,000 12/31

250,000Bal. -0-

Operating Expenses12/31

175,000cl 175,000

Bal. -0-

11-62


PROBLEM 11-23A (cont.)b.2011

Stockholders’ EquityPreferred Stock, $100 par value, 6%

cumulative, 20,000 shares authorized, 2,000 shares issued and outstanding $200,000

Common Stock, $5 par value, 100,000shares authorized, 35,000 shares issued and outstanding 175,000

Paid-In Capital in Excess of ParPreferred Stock

20,000


110,000

Total Paid-In Capital 505,000



11-63


PROBLEM 11-23A (cont.)c.Schedule provided for use of instructor.

Schedule of Number ofShares of Common Stock

Shares Issued

Shares Outstandi

ng2011Jan. 2 15,000 15,000Feb. 14 20,000 20,000Totals 35,000 35,0002012June 1 (500)Totals 35,000 34,500

Shares issued and outstanding are the same for 2011. However, for 2012, the 500 shares of treasury stock reduce the number of outstanding shares. In 2012, there are 35,000 shares issued but only 34,500 outstanding.

11-64


PROBLEM 11-23A (cont.)c.

Lane CorporationBalance Sheet

As of December 31, 2012

AssetsCash $993,000


LiabilitiesDividends Payable $ 47,250

Total Liabilities $ 47,250

Stockholders’ EquityPreferred Stock, $100 par value, 6% cumulative, 20,000 shares authorized, 5,000 shares issued and outstanding $500,000Common Stock, $5 par value, 100,000

shares authorized, 35,000 shares issued,

34,500shares outstanding

175,000

Paid-In Capital in Excess of ParPreferred Stock

80,000


110,000

Total Paid-In Capital 865,000

Retained Earnings 85,750Less: Treasury Stock (5,000)

Total Stockholders’ Equity 945,750

Total Liabilities and Stockholders’ Equity $993,000

11-65


PROBLEM 11-24A a.General Journal


1. Cash (20,000 x $10) 200,000Common Stock, $10 par 200,000

2. Cash (2,000 x $32) 64,000Preferred Stock, $30 stated

value60,000

Paid-In Capital in Excess of SV-PS

4,000

3. Treasury Stock (Common Stock)(500 x $15)

7,500

Cash 7,500

4. Dividends ($30 x 5% x 2,000) 3,000Dividends Payable 3,000

5. Cash (300 x $18) 5,400Treasury Stock (300 x $15) 4,500PIC in Excess of CostTS 900

6. Dividends Payable 3,000Cash 3,000

7. Cash (assumed cash) 75,000Service Revenue 75,000

Operating Expenses 42,000Cash (assumed cash) 42,000

Closing Entries

8. Service Revenue 75,000Retained Earnings 75,000

Retained Earnings 42,000Operating Expenses 42,000

Retained Earnings 3,000Dividends 3,000

9. Retained Earnings 6,000

11-66


Appropriated Retained Earnings

6,000

11-67


PROBLEM 11-24A a. (cont.)Midwest Corp. T-Accounts for 2012

Cash Dividends Payable Retained Earnings1. 200,000 3. 7,500 6. 3,000 4. 3,000 cl 8. 45,000 cl 8 75,0002. 64,000 6. 3,000 Bal. -0- cl 9. 6,0005. 5,400 7. 42,000 Bal. 24,0007. 75,000Bal. 291,900 Appropriated Retained

Earn.cl 9. 6,000Bal. 6,000

Preferred Stock2. 60,000Bal. 60,000

Common Stock1. 200,000Bal.200,000

PIC in Exc. of SV Pref. Stk.

2. 4,000Bal. 4,000

PIC in Exc. of Cost TS5. 900Bal. 900

Treasury Stock3. 7,500 5. 4,500Bal. 3,000

Dividends4. 3,000 cl 8. 3,000Bal. -0-

Service Revenuecl 8. 75,000 7. 75,000

Bal. -0-

Operating Expenses7. 42,000 cl 8. 42,000Bal. -0-

11-68


PROBLEM 11-24A (cont.)b.

Stockholders’ EquityPreferred Stock, $30 stated value, 2,000

shares issued and outstanding $ 60,000Common Stock, $10 par value, 20,000 shares

issued, and 19,800 shares outstanding200,000

Paid-In Capital in Excess of Stated Value Pref. Stk.

4,000

Paid-In Capital in Excess of Cost, Treasury Stk.

900


Retained EarningsAppropriated $ 6,000Unappropriated1 24,000

Total Retained Earnings 30,000Less: Treasury Stock (200 shares) (3,000)


1 Service Revenue $75,000Operating Expenses(42,000)Dividends (3,000)Appropriated (6,000 ) Total $24,000

11-69


PROBLEM 11-25A

a. $300,000 30,000 shares = $10 per share

b. $10 par value per share x 6% = $.60 per share

c. Number of common shares outstanding = 49,000 (50,000 shares issued 1,000 treasury stock)

d. $500,000 + $200,000 = $700,000;$700,000 50,000 shares = $14 per share

e. The market price of the common stock is $11 more than the average issue price. There may be several reasons why this increase in share price has occurred. One reason is that investors anticipate above-average performance in the future. Also, improvement in general economic conditions can make the share price rise.

f. 1. 49,000 x 2 = 98,000 shares outstanding after the split.2. No amount will be transferred from retained earnings.3. Theoretically, the market price will be $12.50 ($25 2).

11-70


PROBLEM 11-26AAbbot, Inc.

Statements Model

Balance Sheet Income Statement Statement of

Event

Assets

= Liab. + S. Equity

Rev. Exp. = Net Inc.

Cash Flows

1. + NA + NA NA NA + FA2. + NA + NA NA NA + FA3. *NA NA NA NA NA NA NA4. + NA + NA NA NA + FA5. NA NA + NA NA NA NA6. + NA + NA NA NA + FA7. NA NA + NA NA NA NA8. NA NA NA NA FA9. NA + NA NA NA NA

10. NA NA NA NA FA

*No entry: memo record of change in par value and # of shares

11-71

Chapter 11 Solutions

Documents

statement of cash flows

ending cash balance

transactions cash

cash contributions

cash balance11

expenses net cash flow

withdrawals net cash

exercises series