Exercises: Set B - Wiley: Homehigheredbcs.wiley.com/legacy/college/kimmel/0470239808/exercise_b/... · E11-9B The following stockholders’ equity accounts, arranged alphabetically,

Exercises: Set B 1

Exercises: Set B

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E11-1B During its first year of operations, Ritter Corporation had these transactionspertaining to its common stock.

Jan. 10 Issued 90,000 shares for cash at $5 per share.July 1 Issued 50,000 shares for cash at $7 per share.

Instructions(a) Journalize the transactions, assuming that the common stock has a par value of $5

per share.(b) Journalize the transactions, assuming that the common stock is no-par with a stated

value of $1 per share.

E11-2B Somer Co. had these transactions during the current period.

June 12 Issued 60,000 shares of $1 par value common stock for cash of $300,000.July 11 Issued 1,000 shares of $100 par value preferred stock for cash at $104 per share.Nov. 28 Purchased 2,000 shares of treasury stock for $11,000.

InstructionsPrepare the journal entries for the transactions shown above.

E11-3B Oritz Corporation is authorized to issue both preferred and common stock. Thepar value of the preferred is $50. During the first year of operations, the company hadthe following events and transactions pertaining to its preferred stock.

Feb. 1 Issued 40,000 shares for cash at $51 per share.July 1 Issued 20,000 shares for cash at $56 per share.

Instructions(a) Journalize the transactions.(b) Post to the stockholders’ equity accounts. (Use T accounts.)

E11-4B The stockholders’ equity section of MaiStyle Corporation’s balance sheet atDecember 31 is presented here.

InstructionsFrom a review of the stockholders’ equity section, answer the following questions.(a) How many shares of common stock are outstanding?(b) Assuming there is a stated value, what is the stated value of the common stock?(c) What is the par value of the preferred stock?(d) If the annual dividend on preferred stock is $36,000, what is the dividend rate on

preferred stock?(e) If dividends of $72,000 were in arrears on preferred stock, what would be the bal-

ance reported for retained earnings?

E11-5B Yanik Corporation recently hired a new accountant with extensive experiencein accounting for partnerships. Because of the pressure of the new job, the accountant

MAISTYLE CORPORATIONBalance Sheet (partial)

Stockholders’ equityPaid-in capital

Preferred stock, cumulative, 10,000 shares authorized,6,000 shares issued and outstanding $ 900,000

Common stock, no par, 750,000 shares authorized,600,000 shares issued 1,800,000

Total paid-in capital 2,700,000Retained earnings 1,158,000

Total paid-in capital and retained earnings 3,858,000Less: Treasury stock (8,000 common shares) (32,000)

Total stockholders’ equity $3,826,000

Journalize and post preferredstock transactions.

(SO 4, 7)

Answer questions aboutstockholders’ equity section.

(SO 2, 3, 4, 7)

Prepare correct entries forcapital stock transactions.

(SO 2, 3, 4)

Journalize issuance ofcommon stock.

(SO 2)

Journalize issuance ofcommon stock and preferredstock and purchase oftreasury stock.

(SO 2, 3, 4)

was unable to review what he had learned earlier about corporation accounting. Duringthe first month, he made the following entries for the corporation’s capital stock.

2 chapter 11 Reporting and Analyzing Stockholders’ Equity

InstructionsOn the basis of the explanation for each entry, prepare the entries that should have beenmade for the capital stock transactions.

E11-6B On January 1 Weiss Corporation had 75,000 shares of no-par common stockissued and outstanding. The stock has a stated value of $5 per share. During the year, thefollowing transactions occurred.

Apr. 1 Issued 8,000 additional shares of common stock for $11 per share.June 15 Declared a cash dividend of $1.50 per share to stockholders of record on

June 30.July 10 Paid the $1.50 cash dividend.Dec. 1 Issued 4,000 additional shares of common stock for $12 per share.

15 Declared a cash dividend on outstanding shares of $1.70 per share tostockholders of record on December 31.

Instructions(a) Prepare the entries, if any, on each of the three dates that involved dividends.(b) How are dividends and dividends payable reported in the financial statements pre-

pared at December 31?

E11-7B On October 31 the stockholders’ equity section of Davis Company’s balancesheet consists of common stock $648,000 and retained earnings $400,000. Davis is con-sidering the following two courses of action: (1) declaring a 5% stock dividend on the54,000 $12 par value shares outstanding or (2) effecting a 3-for-1 stock split that willreduce par value to $4 per share. The current market price is $15 per share.

InstructionsPrepare a tabular summary of the effects of the alternative actions on the company’sstockholders’ equity and outstanding shares. Use these column headings: Before Action,After Stock Dividend, and After Stock Split.

E11-8B Wells Fargo & Company, headquartered in San Francisco, is one of the nation’slargest financial institutions. It reported the following selected accounts (in millions) asof December 31, 2007.

Retained earnings $38,970Preferred stock 450Common stock—$1�

23� par value, authorized 6,000,000,000 shares;

issued 3,472,762,050 shares 5,788Treasury stock—175,659,842 shares (6,035)Additional paid-in capital—common stock 8,212

InstructionsPrepare the stockholders’ equity section of the balance sheet for Wells Fargo as ofDecember 31, 2007.

May 2 Cash 120,000Capital Stock 120,000

(Issued 10,000 shares of $5 par value common stock at $12 per share)

10 Cash 530,000Capital Stock 530,000

(Issued 10,000 shares of $50 par valuepreferred stock at $53 per share)

15 Capital Stock 7,200Cash 7,200

(Purchased 600 shares of commonstock for the treasury at $12 per share)

Journalize cash dividendsand indicate statementpresentation.

(SO 5)

Compare effects of a stockdividend and a stock split.

(SO 5)

Prepare a stockholders’equity section.

(SO 7)

E11-9B The following stockholders’ equity accounts, arranged alphabetically, are in theledger of Marvel Corporation at December 31, 2010.

Common Stock ($5 stated value) $1,500,000Paid-in Capital in Excess of Par Value—Preferred Stock 45,000Paid-in Capital in Excess of Stated Value—Common Stock 1,050,000Preferred Stock (8%, $100 par, noncumulative) 500,000Retained Earnings 1,134,000Treasury Stock—Common (8,000 shares) 78,000

InstructionsPrepare the stockholders’ equity section of the balance sheet at December 31, 2010.

E11-10B The following accounts appear in the ledger of Sycamore Inc. after the booksare closed at December 31, 2010.

Common Stock (no-par, $1 stated value, 400,000 shares authorized,200,000 shares issued) $ 200,000

Paid-in Capital in Excess of Stated Value—Common Stock 1,200,000Preferred Stock ($50 par value, 8%, 40,000 shares authorized, 12,000

shares issued) 600,000Retained Earnings 900,000Treasury Stock (10,000 common shares) 64,000Paid-in Capital in Excess of Par Value—Preferred Stock 24,000

InstructionsPrepare the stockholders’ equity section at December 31, assuming $100,000 of retainedearnings is restricted for plant expansion. (Use Note R.)

E11-11B The following financial information is available for Flowers Foods, Inc.

Exercises: Set B 3

InstructionsCalculate the payout ratio and return on common stockholders’ equity ratio for 2008 and2007. Comment on your findings.

E11-12B The following financial information is available for Walgreen Company.

(in millions) 2007 2006

Average common stockholders’ equity $610 $538Dividends declared for common stockholders 42 29Dividends declared for preferred stockholders 0 0Net income 95 81

(in millions) 2008 2007

Average common stockholders’ equity $11,986 $10,610Dividends declared for common stockholders 394 326Dividends declared for preferred stockholders 0 0Net income 2,157 2,041

InstructionsCalculate the payout ratio and return on common stockholders’ equity ratio for 2008 and2007. Comment on your findings.

E11-13B Mann Corporation decided to issue common stock and used the $400,000 pro-ceeds to retire all of its outstanding bonds on January 1, 2010. The following informa-tion is available for the company for 2009 and 2010.

2010 2009

Net income $ 182,000 $ 150,000Average stockholders’ equity 1,100,000 700,000Total assets 1,200,000 1,200,000Current liabilities 100,000 100,000Total liabilities 100,000 500,000

Calculate ratios to evaluatedividend and earningsperformance.

(SO 8)

Calculate ratios to evaluatedividend and earningsperformance.

(SO 8)

Calculate ratios to evaluateprofitability and solvency.

(SO 8)

Prepare a stockholders’equity section.

(SO 7)

Prepare a stockholders’equity section.

(SO 7)

Instructions(a) Compute the return on stockholder’s equity ratio for both years.(b) Explain how it is possible that net income increased, but the return on common

stockholders’ equity decreased.(c) Compute the debt to total assets ratio for both years, and comment on the implica-

tions of this change in the company’s solvency.

E11-14B National Airlines is considering these two alternatives for financing the pur-chase of a fleet of airplanes:

1. Issue 60,000 shares of common stock at $40 per share. (Cash dividends have not beenpaid nor is the payment of any contemplated.)

2. Issue 13%, 10-year bonds at face value for $2,400,000.

It is estimated that the company will earn $600,000 before interest and taxes as a resultof this purchase. The company has an estimated tax rate of 30% and has 90,000 sharesof common stock outstanding prior to the new financing.

InstructionsDetermine the effect on net income and earnings per share for (a) issuing stock and(b) issuing bonds. Assume the new shares or new bonds will be outstanding for the en-tire year.

E11-15B Garrison Company has $1,000,000 in assets and $1,000,000 in stockholders’equity, with 50,000 shares outstanding the entire year. It has a return on assets ratio of12%. In the past year it had net income of $120,000. On January 1, 2010, it issued $500,000in debt at 5% and immediately repurchased 25,000 shares for $500,000. Management ex-pected that, had it not issued the debt, it would have again had net income of $120,000.

Instructions(a) Determine the company’s net income and earnings per share for 2009 and 2010.

(Ignore taxes in your computations.)(b) Compute the company’s return on common stockholders’ equity for 2009 and 2010.(c) Compute the company’s debt to assets ratio for 2009 and 2010.

*E11-16B On January 1, 2010, Kern Corporation had $1,500,000 of common stock out-standing that was issued at par and retained earnings of $750,000. The company issued30,000 shares of common stock at par on July 1 and earned net income of $400,000 forthe year.

InstructionsJournalize the declaration of a 15% stock dividend on December 10, 2010, for the follow-ing two independent assumptions.(a) Par value is $10 and market value is $12.(b) Par value is $5 and market value is $9.

4 chapter 11 Reporting and Analyzing Stockholders’ Equity

Compare issuance of stockfinancing to issuance ofbond financing.

(SO 8)

Compute various ratios.

(SO 8)

Journalize stock dividends.

(SO 5, 9)