Chapter 13 Exercise 13-2 1. Feb. 20 Cash......................................................................................... 144,000 Common Stock, No-Par Value ........................................... Issued common stock for cash. Cash......................................................................................... 144,000 Common Stock, $20 Par Value........................................... Contributed Capital in Excess of Par Value, Common Stock .................................................... Issued common stock for cash. Cash......................................................................................... 144,000 Common Stock, $8 Stated Value ........................................ Contributed Capital in Excess of Stated Value, Common Stock .......................................... Issued common stock for cash. 144,000 2. Feb. 20 120,000 24,000 3. Feb. 20 48,000 96,000 Exercise 13-3 1. Organization Expenses ...................................................................... 30,000 Common Stock, No-Par Value ..................................................... Issued stock to promoters. Organization Expenses ...................................................................... 30,000 Common Stock, $1 Stated Value.................................................. Contributed Capital in Excess of Stated Value, Common Stock .............................................................. Issued stock to promoters. Cash .................................................................................................. 70,000 Common Stock, $10 Par Value .................................................... Contributed Capital in Excess of Par Value, Common Stock .............................................................. Issued common stock for cash. Cash ................................................................................................... 120,000 Preferred Stock, $100 Par Value ................................................... Contributed Capital in Excess of Par Value, Preferred Stock ............................................................... Issued preferred stock for cash. 30,000 2. 2,000 28,000 3. 40,000 30,000 4. 100,000 20,000 Exercise 13-5 Preferred 2003 ($10,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... 2004 ($24,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... 2005 ($100,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... 2006 ($196,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... 2003-2006 ($330,000 paid) Total for four years .................................................... $10,000 ______ $10,000 Common $ $ 0 0 $24,000 ______ $24,000 $ $ 0 0 $30,000 ______ $30,000 $ 70,000 $ 70,000 $30,000 ______ $30,000 ______ $94,000 $166,000 $166,000 _______ $236,000 * The holders of the noncumulative preferred stock are entitled to no more than $30,000 of dividends in any one year (7.5% x $10 x 40,000 shares). Exercise 13-6 Preferred 2003 ($10,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... (Note: $20,000 in preferred stock dividends in arrears.) 2004 ($24,000 paid) Preferred arrears from 2003 .................................... Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... (Note: $26,000 in preferred stock dividends in arrears.) 2005 ($100,000 paid) Preferred arrears from 2004 .................................... Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... (Note: $0 in preferred stock dividends in arrears.) 2006 ($196,000 paid) Preferred* .................................................................. Common remainder ................................................ Total for the year ....................................................... (Note: $0 in preferred stock dividends in arrears.) 2003-2006 ($330,000 paid) Total for four years .................................................... _______ $120,000 _______ $210,000 $ 10,000 _______ $ 10,000 Common $ $ 0 0 $ 20,000 4,000 _______ $ 24,000 $ $ 0 0 $ 26,000 30,000 _______ $ 56,000 $ 44,000 $ 44,000 $ 30,000 _______ $ 30,000 $166,000 $166,000 * The holders of the cumulative preferred stock are entitled to no more than $30,000 of dividends declared in any year (7.5% x $10 x 40,000 shares) plus any dividends skipped in prior years. Exercise 13-8 1. Feb. 5 Retained Earnings ........................................................................... 480,000 Common Stock Dividend Distributable ..................................... Contributed Capital in Excess of Par, Common Stock....................................................................... Declared 20% common stock dividend (60,000 x 20% x $40). Common Stock Dividend Distributable ........................................... 300,000 Common Stock, $25 Par Value.................................................. Distributed common stock dividend. Before $2,700,000 60,000 $ 45.00 x $ 750 33,750 300,000 180,000 Feb. 28 300,000 2. Total stockholders' equity ....................................... Issued and distributable shares ................................ Book value per share ............................................... Shares owned .......................................................... Total book value of shares....................................... * 750 shares x 120% = 900 shares. 3. Market value per share ............................................ Shares owned .......................................................... Total market value of shares owned ........................ February 5 $ 40 x 750 $30,000 February 28 $ 34.00 x 900 $30,600 After $2,700,000 72,000 $ 37.50 X 900* $ 33,750 Note: The total market value of the investor's holdings is approximately the same for February 5 and February 28. Assuming that the stock dividend is the only valuerelevant information/event between February 5th and February 28 th, these per share values highlight the lack of value distributed in a stock dividend. Exercise 13-9 1. Oct. 11 Treasury Stock (4,500 x $30) .......................................................... 135,000 Cash .......................................................................................... Purchased treasury stock. Cash (1,200 x $36) .......................................................................... 43,200 Treasury Stock (1,200 x $30) .................................................... Contributed Capital, Treasury Stock .......................................... Reissued treasury stock at a price exceeding cost. 135,000 Nov. 1 36,000 7,200 Nov. 25 Cash (3,300 x $25) .......................................................................... 82,500 Contributed Capital, Treasury Stock ............................................... 7,200 Retained Earnings ........................................................................... 9,300 Treasury Stock (3,300 x $30) .................................................... Reissued treasury stock at a price less than cost. 2. Changes to the equity section include the following (i) The common stock account description line will change. After the treasury stock purchase, it should read: 99,000 Common stock $10 par value; 36,000 shares authorized and issued; 4,500 shares in treasury.............................................................................. $360,000 The dollar balance of this account does not change with a treasury stock purchase. (ii) The descriptions and dollar amounts for Contributed Capital in Excess of Par Value, Common Stock, and for Total Contributed Capital will not change. (iii) The retained earnings dollar balance will not change but its description should change to: Retained earnings ($135,000 restricted for treasury stock) ..................................... $432,000 (iv) After the purchase, a deduction for the cost of treasury stock is reported immediately before the total line for stockholders' equity as: Less cost of treasury stock ...............................................................................$(135,000) (v) Total stockholders' equity will change from $900,000 to $765,000. Revised equity section appears as follows Common stock $10 par value; 36,000 shares authorized $ And issued; 4,500 shares in treasury ................................................................360,000 Contributed capital in excess of par value, Common stock .................................108,000 Total contributed capital .....................................................................................468,000 Retained earnings, $135,000 restricted by treasury stock ....................................432,000 Total ..................................................................................................................900,000 Less cost of treasury stock .................................................................................. (135,000) Total stockholders' equity ..................................................................................765,000 $ Exercise 13-10 1. 2. 3. 4. 5. 6. 7. 8. 9. A C A D A A B B A Income (loss) from continuing operations Extraordinary gain (loss) Income (loss) from continuing operations Cumulative effect of change in accounting principle Income (loss) from continuing operations Income (loss) from continuing operations Gain (loss) from disposing of a discontinued segment Income (loss) from operating a discontinued segment Income (loss) from continuing operations Exercise 13-11 RANDA MERCHANDISING, INC. Income Statement For Year Ended December 31, 2005 Net sales ......................................................................................... Expenses Cost of goods sold ....................................................................... $1,380,000 Salaries expense .......................................................................... 540,000 Depreciation expense ................................................................... 262,500 Total expenses ............................................................................. Income from continuing operations before taxes ............................. Income taxes expense ..................................................................... Income from continuing operations ................................................ Discontinued segment Loss from operating wholesale business segment (net of tax) ......................................................................................... (555,000) Gain on sale of wholesale business segment (net of tax) .................................................................. 675,000 Income before extraordinary gain and cumulative effect of a change in accounting principle .................................... Extraordinary gain on condemnation of company property (net of tax) ...................................................... Cumulative effect of change in accounting principle (net of tax) .................................................................... Net income ..................................................................................... $2,700,000 2,182,500 517,500 207,000 310,500 120,000 430,500 330,000 135,000 $ 895,500 Exercise 13-15 1. Total stockholders' equity ............................................................... Less equity applicable to preferred shares Call price ($30 x 5,000) ................................................................. Cumulative dividends in arrears (none).......................................... Equity applicable to common shares ................................................ Book value of preferred stock ($150,000/5,000) .............................. Book value of common stock ($642,500/40,000) ............................. 2. Total stockholders' equity ............................................................... Less equity applicable to preferred shares Call price ($30 x 5,000) ................................................................. Cumulative dividends in arrears (3 x 6% x $125,000) .................... Equity applicable to common shares ................................................ Book value of preferred stock ($172,500/5,000) .............................. Book value of common stock ($620,000/40,000) ............................. $ 792,500 $150,000 22,500 $ 792,500 $150,000 0 (150,000) $ 642,500 $ $ 30.00 16.06 (172,500) $ 620,000 $ $ 34.50 15.50 Problem 13-2A Part 1 Jan. 1 Treasury Stock, Common ................................................................ 40,000 Cash .......................................................................................... Purchased treasury stock (2,000 x $20). Retained Earnings ........................................................................... 36,000 Common Dividend Payable ....................................................... Declared $2 dividend on 18,000 outstanding shares. Common Dividend Payable............................................................. 36,000 Cash .......................................................................................... Paid cash dividend. Cash* .............................................................................................. 18,000 Treasury Stock, Common** ...................................................... Contributed Capital, Treasury Stock*** .................................... Reissued treasury stock. *(750 x $24) **(750 x $20) ***(750 x $4) Cash* .............................................................................................. 21,250 Contributed Capital, Treasury Stock ...............................................3,000 Retained Earnings ........................................................................... 750 Treasury Stock, Common** ...................................................... Reissued treasury stock. *(1,250 x $17) **(1,250 x $20) Retained Earnings ........................................................................... 40,000 Common Dividend Payable ....................................................... Declared $2 dividend on 20,000 outstanding shares. Common Dividend Payable............................................................. 40,000 Cash .......................................................................................... Paid cash dividend. Income Summary ............................................................................ 194,000 Retained Earnings ..................................................................... Closed Income Summary account. 40,000 Jan. 5 36,000 Feb. 28 36,000 July 6 15,000 3,000 Aug. 22 25,000 Sept. 5 40,000 Oct. 28 40,000 Dec. 31 194,000 Part 2 CONTEXT CORPORATION Statement of Retained Earnings For Year Ended December 31, 2006 Retained earnings, Dec. 31, 2005......................................................... Plus net income ................................................................................... Less: Cash dividends declared ........................................................... Treasury stock reissuances ....................................................... Retained earnings, Dec. 31, 2006......................................................... $135,000 194,000 329,000 (76,000) (750) $252,250 Part 3 CONTEXT CORPORATION Stockholders' Equity Section of the Balance Sheet December 31, 2006 Common stock $10 par value, 50,000 shares authorized, 20,000 shares issued and outstanding............................... Contributed capital in excess of par value, common stock ................................................................................... Total contributed capital ...................................................................... Retained earnings (from part 2) ........................................................... Total stockholders' equity ................................................................... $200,000 30,000 230,000 252,250 $482,250