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- Title: B_Series_SolutionsChap11
- Type: Notes
- School: Virginia Tech
- Course: ACIS 2115
- Term: Spring
TO SOLUTIONS EXERCISES - SERIES B - CHAPTER 11 EXERCISE 11-1B Transactions Cash Acquired from Owner Revenues Expenses Withdrawal $20,000 14,500 9,300 500 Dan Jones Sole Proprietorship Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income Capital Statement Beginning Capital Balance Plus: Capital Acquired from Owner Plus: Net Income Less: Withdrawal by Owner Ending Capital Balance $ -020,000 5,200 (500) $24,700 $14,500 (9,300) $ 5,200 11-53 EXERCISE 11-1B (cont.) Dan Jones Sole Proprietorship Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Equity Jones, Capital Total Liabilities and Equity Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Owner Outflow for Owner Withdrawals Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 20,000 (500) 19,500 24,700 -0$24,700 $14,500 (9,300) $ 5,200 -0$24,700 $24,700 $ -024,700 $24,700 11-54 EXERCISE 11-2B Transactions: Cash Contributions C. Mills P. Price Total Revenues Expenses Mills Withdrawal Price Withdrawal $24,500 45,500 $70,000 $15,000 6,300 600 1,400 35% 65% 100% M&P Partnership Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income Capital Statement Beginning Capital Balance Plus: Capital Acquired from Owners Plus: Net Income Less: Withdrawals by Owners Ending Capital Balance $ -070,000 8,700 (2,000) $76,700 $15,000 (6,300) $ 8,700 11-55 EXERCISE 11-2B (cont.) Prepared for the instructor's use: Analysis of Capital Accounts: Beginning Capital Balance Investments Net Income C. Mills 35% P. Price 65% Withdrawals Ending Capital Balances Mills $ -024,500 3,045 (600) $26,945 5,655 (1,400) $49,755 (2,000) $76,700 Price $ -045,500 Total $ -070,000 8,700 11-56 EXERCISE 11-2B (cont.) M&P Partnership Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Equity C. Mills, Capital P. Price, Capital Total Equity Total Liabilities and Equity Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Partners Outflow for Partners' Withdrawals Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 70,000 (2,000) 68,000 76,700 -0$76,700 $15,000 (6,300) $ 8,700 -0$26,945 49,755 76,700 $76,700 $76,700 $76,700 $ -0- 11-57 EXERCISE 11-3B Transactions: Issued 1,000 shares of $5 par stock @ $18 Revenues Expenses Dividends Paid $18,000 23,000 17,000 1,200 Stone Corporation Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income $23,000 (17,000) $ 6,000 Statement of Changes in Stockholders' Equity Beginning Common Stock Plus: Issuance of Common Stock Ending Common Stock Beginning Retained Earnings Plus: Net Income Less: Dividend Ending Retained Earnings Total Stockholders' Equity $ -018,000 $18,000 -06,000 (1,200) 4,800 $22,800 11-58 EXERCISE 11-3B (cont.) Stone Corporation Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Stockholders' Equity Common Stock, $5 par value, 1,000 shares issued and outstanding Paid-In Capital in Excess of Par Total Paid-In Capital Retained Earnings Total Liabilities and Stockholders' Equity Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Issue of Stock Outflow for Dividends Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 18,000 (1,200) 16,800 22,800 -0$22,800 $23,000 (17,000) $ 6,000 -0$22,800 $22,800 $ -0- $ 5,000 13,000 18,000 4,800 $22,800 11-59 EXERCISE 11-4B a. Event Assets Cash 3/1 100,000 5/2 144,000 = = = = Balance Sheet Liab + Stockholders' Equity + C. Stk. + PIC Exc. NA + 50,000 + 50,000 NA + 60,000 + 84,000 Income Statement Rev. Exp. = Net Inc. NA NA NA NA = = NA NA Stmt. of Cash Flow 100,000 FA 144,000 FA b. Common Stock: 5,000 shares x $10= 6,000 shares x $10= Total c. Paid-In Capital in Excess of Par 5,000 shares x ($20 $10)= 6,000 shares x ($24 $10)= Total d. Total Paid-In Capital: Common Stock Paid-In Capital in Excess of Par Total e. Total Assets: Cash f. General Journal Date 3/1 Account Titles Cash Common Stock Paid-In Capital in Excess of Par Cash Common Stock Paid-In Capital in Excess of Par Debit 100,000 50,000 50,000 144,000 60,000 84,000 Credit $ 50,000 84,000 $134,000 $ 50,000 60,000 $110,000 $110,000 134,000 $244,000 $244,000 5/2 11-60 EXERCISE 11-5B a. General Journal Event 1. Account Titles Cash (10,000 x $8) Common Stock, $5 par Paid-In Capital in Excess of Par, CS Cash (3,000 x $80) Preferred Stock, $50 stated value Paid-In Capital in Excess of SV, PS Cash (80,000 x $10) Common Stock, $5 par Paid-In Capital in Excess of Par, CS Debit 80,000 50,000 30,000 240,000 150,000 90,000 800,000 400,000 400,000 Credit 2. 3. b. Stockholders' Equity: Preferred Stock, $50 stated value, 5% cumulative class A, 20,000 shares authorized, 3,000 shares issued and outstanding Common Stock, $5 par value, 200,000 shares authorized, 90,000 shares issued and outstanding Paid-In Capital in Excess of SV, Preferred Stock Paid-In Capital in Excess of Par, Common Stock Retained Earnings Total Stockholders' Equity $ 150,000 450,000 90,000 430,000 -0$1,120,000 11-61 EXERCISE 11-6B a. Event Assets = Cash 1. 2. = Balance Sheet Stockholders' Equity Pref. No-Par PIC in + Excess Stock + C. Stock NA + 50,000 + 120,000 + NA NA + 30,000 Income Statement Rev. Exp. = Net Inc. Stmt. of Cash Flow 120,000 = 80,000 = NA NA = NA NA = NA NA 120,000 FA 80,000 FA b. General Journal Event 1. 2. Account Titles Cash Common Stock, No Par Cash Preferred Stock, $50 par value Paid-In Capital in Excess of Par, PS Debit 120,000 120,000 80,000 50,000 30,000 Credit 11-62 EXERCISE 11-7B a. 1,000 shares x $31 market value per share of stock = $31,000 b. Balance Sheet Event Assets = Stockholders' Equity Cash + Land = C. Stk. + PIC Exc. 1. 2. NA + 31,000 12,400 + NA 1 1,000 x $10 = $10,000 2 400 x $10 = $4,000 = 10,0001 = 4,0002 + + Income Statement Rev. Exp. = Net Inc. Stmt. of Cash Flows 21,000 8,400 NA NA = NA NA = NA NA NA 12,400 FA EXERCISE 11-8B a. Hawk Corporation General Journal Date 1. 2. Account Titles Treasury Stock (1,000 x $38) Cash Cash (500 x $55) Treasury Stock (500 x $38) Paid-In Capital in Excess of Cost, TS Debit 38,000 38,000 27,500 19,000 8,500 Credit b. 1. Bal. Treasury Stock 38,000 2. 19,000 19,000 11-63 EXERCISE 11-9B a. & b. Common Stock Beginning Number of Shares Issued This Period Repurchased as Treasury Stock Resold Treasury Stock Ending Number of Shares c. Issued 800 2,000 Outstanding 800 2,000 (300) 100 (a) 2,600 (b) 2,800 Sneed Corp. General Journal Date 1. Account Titles Cash (2,000 X $43) Common Stock, $10 par Paid-in Capital in Excess of Par, CS Treasury Stock (300 x $38) Cash Cash (100 x $40) Treasury Stock (100 x $38) Paid-In Capital in Excess of Cost, TS Debit 86,000 20,000 66,000 11,400 11,400 4,000 3,800 200 Credit 2. 3. d. Stockholders' Equity Common Stock, $10 par value, 10,000 shares authorized, 2,800 shares issued, and 2,600 shares outstanding Paid-In Capital in Excess of Par, Common Paid-In Capital in Excess of Cost, TS Total Paid-In Capital Retained Earnings Less: Treasury Stock Total Stockholders' Equity $28,000 78,000 200 $106,200 75,000 (7,600) $173,600 11-64 EXERCISE 11-10B a. Date Assets 5/1 NA 5/15 NA 5/31 (120,000) = = = = Balance Sheet Liab. + C. Stk. 120,000 + NA NA + NA (120,000) + NA + Ret. Ear. + (120,000) + NA + NA Income Statement Rev Exp. = Net Inc. NA NA = NA NA NA = NA NA NA = NA Stmt. of Cash Flows NA NA (120,000)FA b. Lott Corporation General Journal Date 5/1/05 5/15/05 5/31/05 Account Titles Dividends Dividends Payable No Entry Dividends Payable Cash Closing Entry 12/31/05 Retained Earnings Dividends 120,000 120,000 120,000 120,000 Debit 120,000 120,000 Credit Note: The closing entry is not required in the exercise. 11-65 EXERCISE 11-11B Computation of Preferred Dividends Par Value Dividend of Stock x Dividend % = per Share $50 x 7% = $3.50 Preferred Shares Outstanding 2,000 Total Dividends = per Year = $7,000 x x a. b. Dividend arrearage as of January 1, 2008: $7,000 Amount Total Dividend Declared 2007 Arrearage 2008 Preferred Dividends Available for Common Shs. Distributed to Common Total Distribution $30,000 (7,000) (7,000) 16,000 (16,000) Dist. to Shareholders Preferred Common $ 7,000 7,000 $16,000 $14,000 $16,000 11-66 EXERCISE 11-12B a. Computation of Dividends to Be Paid: Preferred Stock $100 par value x 8% x 10,000 shares= = $ 80,000 100,000 $180,000 Common Stock $1 x 100,000 shares Total Dividend b. Date 6/10/05 6/20/05 7/1/05 12/31/05 (Closing Entry) Account Titles Dividends Dividends Payable No Entry Dividends Payable Cash Retained Earnings Dividends Debit 180,000 Credit 180,000 180,000 180,000 180,000 180,000 Note: The closing entry is not required in the exercise. 11-67 EXERCISE 11-13B a. Distribution of Dividend: Distributed to Shareholders Preferred Common Total Dividend Declared Preferred Arrearage* Current Preferred Dividend* Available for Common Distributed to Common Total $200,000 (80,000) (80,000) 40,000 (40,000) $ 80,000 80,000 $40,000 $40,000 $160,000 *$100 X 8% X 10,000 Shares = $80,000 b. Varsity, Inc. General Journal for 2004 Date Mar. 8 Mar. 20 Mar. 31 Account Titles Dividends Dividends Payable No Entry Dividends Payable Cash Closing Entry Dec. 31 Retained Earnings Dividends 200,000 200,000 200,000 200,000 Debit 200,000 200,000 Credit Note: The closing entry is not required in the exercise. 11-68 EXERCISE 11-14B a. (10,000 shares x .05) x $14 = $7,000 b. Balance Sheet Assets = Liab + Stockholders' Equity + C. Stock + PIC. Ex. + Ret. Ear. NA = NA + Income Statement Rev. Exp. = Net Inc. NA Stmt. of Cash Flows 5,000 + 2,000 + (7,000) NA = NA NA c. General Journal Account Titles Retained Earnings Common Stock, $10 par Paid-In Capital in Excess of Par, CS Debit 7,000 5,000 2,000 Credit 11-69 EXERCISE 11-15B a. No formal entry would be made in the accounting records. A memo entry would indicate the number of shares had quadrupled and the par value had been reduced by three-fourths. 100,000 shares x 4 = 400,000 new shares outstanding $20 par value 4 = $5 new par value c. Theoretically, the market value per share would be reduced to $60 ($240 4) after the split. However, if this is perceived as a good move by the company, the price per share may increase to something over $60. b. 11-70 EXERCISE 11-16B TCE should pursue the acquisition of the stock of National Mowers, Inc. A 5% interest in a public company could allow TCE to influence the management of the company. On the other hand, a 5% ownership in Dobbs, Inc. would allow TCE little influence. A closely held company is a company whose stock is owned by only a few stockholders. Consequently, a 5% interest in a closely held company will generally not allow for much influence. 11-71 EXERCISE 11-17B Sewon Ow is correct if the organization in question is a not-for-profit. Donor contributions to a NFP are classified as revenues on the statement of activities. If the contributions are unrestricted or temporarily restricted, the amounts are included in the operating activities section of the statement of cash flows. Permanently restricted contributions are considered financing activities. Mark Hayes is correct if the organization is a for-profit business. In this case, capital acquisitions appear on the equity statement and as a financing activity on the statement of cash flows. 11-72 SOLUTIONS TO PROBLEMS - SERIES B - CHAPTER 11 PROBLEM 11-18B Transactions Cash Acquired from Owner(s) Revenues Expenses Distributions/Withdrawals a. Sole Proprietorship Calloway Company Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income Capital Statement Beginning Capital Balance Plus: Capital Acquired from Owner Plus: Net Income Less: Withdrawal by Owner Ending Capital Balance $ -0$18,000 (12,500) $ 5,500 $40,000 18,000 12,500 3,000 40,000 5,500 (3,000) $42,500 11-73 PROBLEM 11-18B a. (cont.) Calloway Company Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Equity Macy Calloway, Capital Total Liabilities and Equity Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Owner Outflow for Owner's Withdrawals Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 40,000 (3,000) 37,000 42,500 -0$42,500 $18,000 (12,500) $ 5,500 -0$42,500 $42,500 $ -0- 42,500 $42,500 11-74 PROBLEM 11-18B (cont.) b. Partnership Calloway Company Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income Capital Statement Beginning Capital Balance Plus: Capital Acquired from Owners Plus: Net Income Less: Withdrawals by Owners Ending Capital Balance Prepared for the instructor's use: Analysis of Capital Accounts: Beginning Capital Balance Investments Net Income* Withdrawals Ending Capital Balances *M. Calloway: $5,500 x 40% = $2,200 A. Calloway: $5,500 x 60% = $3,300 M. Calloway $ -025,000 2,200 (1,800) $25,400 A. Calloway $ -015,000 3,300 (1,200) $17,100 Total $ -040,000 5,500 (3,000) $42,500 $ -0$18,000 (12,500) $ 5,500 40,000 5,500 (3,000) $42,500 11-75 PROBLEM 11-18B b. (cont.) Calloway Company Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Equity Macy Calloway, Capital Artie Calloway, Capital Total Liabilities and Equity Statement of Cash Flows For the Year Ended 31, December 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Partners Outflow for Partners' Withdrawals Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 40,000 (3,000) 37,000 42,500 -0$42,500 $18,000 (12,500) $ 5,500 -0$42,500 $42,500 $ -025,400 17,100 $42,500 11-76 PROBLEM 11-18B (cont.) c. Corporation Calloway Inc. Financial Statements For the Year Ended December 31, 2009 Income Statement Revenues Expenses Net Income $18,000 (12,500) $ 5,500 Statement of Changes in Stockholders' Equity Beginning Common Stock Plus: Issuance of Common Stock Ending Common Stock Beginning Retained Earnings Plus: Net Income Less: Dividends Ending Retained Earnings Total Stockholders' Equity $ -040,000 $40,000 -05,500 (3,000) 2,500 $42,500 11-77 PROBLEM 11-18B c. (cont.) Calloway Inc. Financial Statements Balance Sheet As of December 31, 2009 Assets Cash Total Assets Liabilities Stockholders' Equity Common Stock, $5 par value, 5,000 shares issued and outstanding Paid-In Capital in Excess of Par Total Paid-In Capital Retained Earnings Total Liabilities and Stockholders' Equity Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities: Inflow from Issue of Stock Outflow for Dividends Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 40,000 (3,000) 37,000 42,500 -0$42,500 $18,000 (12,500) $ 5,500 -0$42,500 $42,500 $ -0- $25,000 15,000 40,000 2,500 $42,500 11-78 PROBLEM 11-19B a. General Journal Date 2008 Jan. 5 Account Titles Cash (10,000 x $28) Common Stock, $10 par PIC in Excess of ParCS Cash (1,000 x $70) Preferred Stock, $50 par PIC in Excess of ParPS Cash (40,000 x $40) Common Stock, $10 Par PIC in Excess of ParCS Cash Service Revenue Operating Expenses Cash Dividends ($50 x 6% x 1,000) Dividends Payable Closing Entries Dec. 31 Dec. 31 Dec. 31 2009 Feb. 15 Service Revenue Retained Earnings Retained Earnings Operating Expenses Retained Earnings Dividends Dividends Payable Cash 170,000 170,000 110,000 110,000 3,000 3,000 3,000 3,000 Debit 280,000 100,000 180,000 70,000 50,000 20,000 1,600,000 400,000 1,200,000 170,000 170,000 110,000 110,000 3,000 3,000 Credit Jan. 12 Apr. 5 Dec. 31 Dec. 31 Dec. 31 11-79 PROBLEM 11-19B a. (cont.) General Journal Date 2009 Mar. 3 Account Titles Cash (10,000 x $78) Preferred Stock, $50 par PIC in Excess of ParPS Treasury Stock (Common) (500 x $43) Cash Cash Service Revenue Operating Expenses Cash Dividends Dividends Payable Closing Entries Dec. 31 Dec. 31 Dec. 31 Service Revenue Retained Earnings Retained Earnings Operating Expenses Retained Earnings Dividends 210,000 210,000 140,000 140,000 62,700 62,700 $33,000 29,700 $62,700 Debit 780,000 500,000 280,000 21,500 21,500 210,000 210,000 140,000 140,000 62,700* 62,700 Credit May 5 Dec. 31 Dec. 31 Dec. 31 *Preferred Stock: $50 x 6% x 11,000 shares = Common Stock: $.60 x 49,500 shares = Total Dividend 11-80 PROBLEM 11-19B (cont.) b. Hamby Corporation Balance Sheet As of December 31, 2008 Assets Cash1 Total Assets Liabilities Dividends Payable Total Liabilities Stockholders' Equity Preferred Stock, $50 par value, 6% cumulative, 50,000 shares authorized, 1,000 shares issued and outstanding Common Stock, $10 par value, 100,000 shares authorized, 50,000 shares issued and outstanding Paid-In Capital in Excess of ParPreferred Stock Paid-In Capital in Excess of ParCommon Stock Total Paid-In Capital Retained Earnings2 Total Stockholders' Equity Total Liabilities and Stockholders' Equity 1 $2,010,000 $2,010,000 $ 3,000 $ 3,000 50,000 500,000 20,000 1,380,000 1,950,000 57,000 2,007,000 $2,010,000 $170,000 (110,000) (3,000) $57,000 Cash: 1/05/08 1/12/08 4/15/08 12/31/08 12/31/08 Total $280,000 70,000 1,600,000 170,000 (110,000) $2,010,000 2 Retained Earnings: 12/31/08 12/31/08 12/31/08 Total 11-81 PROBLEM 11-19B (cont.) b. Schedule of Number of Shares of Common Stock Shares Issued 2008 Jan. 5 10,000 Apr. 5 40,000 Totals 50,000 2009 May 5 Totals 50,000 Shares Outstanding 10,000 40,000 50,000 (500) 49,500 Shares issued and outstanding are the same for 2008. However, for 2009, the 500 shares of treasury stock reduce the number of outstanding shares. In 2009, there are 50,000 shares issued but only 49,500 outstanding. 11-82 PROBLEM 11-19B b. (cont.) Hamby Corporation Balance Sheet As of December 31, 2009 Assets Cash1 Total Assets Liabilities Dividends Payable Total Liabilities Stockholders' Equity Preferred Stock, $50 par value, 6% cumulative, 50,000 shares authorized, 11,000 shares issued and outstanding Common Stock, $10 par value, 100,000 shares authorized, 50,000 shares issued, 49,500 shares outstanding Paid-In Capital in Excess of ParPreferred Stk. Paid-In Capital in Excess of ParCommon Stk. Total Paid-In Capital Retained Earnings2 Less: Treasury Stock Total Stockholders' Equity Total Liabilities and Stockholders' Equity 1 $2,835,500 $2,835,500 $ 62,700 $ 62,700 550,000 500,000 300,000 1,380,000 2,730,000 64,300 (21,500) 2,772,800 $2,835,500 Beginning Cash: 2/15/09 3/13/09 5/15/09 12/31/09` 12/31/09 Balance $2,010,000 (3,000) 780,000 (21,500) 210,000 (140,000) $2,835,500 2 Beginning Retained Earnings $57,000 12/31/09 210,000 12/31/09 (140,000) 12/31/09 (62,700) Balance $64,300 11-83 PROBLEM 11-20B a. General Journal Date 1. 2. 3. 4. 5. Account Titles Cash (20,000 x $5) Common Stock, $5 par Cash (1,000 x $20) Preferred Stock, $20 stated value Treasury Stock (Common Stock) (1,000 x $7) Cash Dividends Dividends Payable Cash (500 x $10) Treasury Stock (500 x $7) PIC in Excess of CostTS Dividends Payable Cash Cash Service Revenue Operating Expenses Cash Closing Entries 8. Service Revenue Retained Earnings Retained Earnings Operating Expenses Retained Earnings Dividends 9. Retained Earnings Appropriated Retained Earnings 54,000 54,000 32,000 32,000 1,500 1,500 5,000 5,000 Debit 100,000 100,000 20,000 20,000 7,000 7,000 1,500 1,500 5,000 3,500 1,500 1,500 1,500 54,000 54,000 32,000 32,000 Credit 6. 7. 11-84 PROBLEM 11-20B (cont.) b. One Co. Balance Sheet As of December 31, 2009 Assets Cash1 Total Assets Liabilities Stockholders' Equity Preferred Stock, $20 stated value, 1,000 shares issued and outstanding Common Stock, $5 par value, 20,000 shares issued and 19,500 shares outstanding Paid-In Capital in Excess of CostTreasury Stock Total Paid-In Capital Retained Earnings Appropriated Unappropriated Total Retained Earnings Less: Treasury Stock (500 shares) Total Stockholders' Equity Total Liabilities and Stockholders' Equity 1 $138,500 $138,500 $ -0- $ 20,000 100,000 1,500 121,500 5,000 15,500 20,500 (3,500) 138,500 $138,500 Cash: $100,000 20,000 (7,000) 5,000 (1,500) 54,000 (32,000) $138,500 11-85 PROBLEM 11-21B a. b. c. d. Outstanding Shares Prior to Event 2 Less: Treasury Stock (Event 2) Total After Event 2 Plus: Treasury Stock Reissued (Event 3) Total After Event 3 200,000 (1,500) 198,500 800 199,300 $2,100,000 200,000 shares =$10.50 per share $22,500 $15 per share = 1,500 shares $12,000 $15 per share = 800 shares 11-86 PROBLEM 11-22B a. Deaton Co. Statements Model For 2006 Balance Sheet + Stockholders' Equity P. Stock + C. Stock + Ret. Ear. + NA + 200,000 + NA + 100,000 + + NA NA + NA + NA + (6,000) + NA + 30,000 + (30,000) + NA + NA + NA NA + NA + + 230,000 + + + Event 1. 2. 3. 4.* 5. memo Assets 200,000 100,000 (6,000) NA NA = Liab. = = = = = Rev. NA NA NA NA NA Income Statement Exp. = Net Inc. Stmt. of Cash Flows 200,000 FA 100,000 FA (6,000) FA NA NA 145,000 OA (97,000) OA 342,000 NC NA NA NA NA NA NA NA NA NA NA = = = = = NA NA NA NA NA 145,000 (97,000) 48,000 6a. 6b. Totals 145,000 = (97,000) = 342,000 = NA + NA NA + NA NA + 100,000 145,000 (97,000) 12,000 145,000 NA 145,000 NA = 97,000 = 97,000 = *20,000 shares x 10% = 2,000 shares; 2,000 shares x $15 = $30,000 11-87 PROBLEM 11-22B (cont.) b. General Journal Date 1. 2. 3. 4. 5. Account Titles Cash (20,000 x $10) Common Stock, No Par Cash (5,000 x $20) Preferred Stock, $20 Par Dividends Cash Retained Earnings* Common Stock, No Par Deaton's declaration of a 2-for-1 stock split will replace the 22,000 shares of no-par common stock with 44,000 shares of no-par common stock. Cash Service Revenue Operating Expenses Cash 145,000 145,000 97,000 97,000 Debit 200,000 200,000 100,000 100,000 6,000 6,000 30,000 30,000 Credit 6a. 6b. *20,000 shares x 10% = 2,000 shares; 2,000 shares x $15 per share = $30,000 11-88 PROBLEM 11-22B (cont.) c. Stockholders' Equity Preferred Stock, $20 par value, 6%, 5,000 shares issued and outstanding Common Stock, no par value, 44,000 shares issued and outstanding Total Paid-In Capital Retained Earnings Total Stockholders' Equity $100,000 230,000 $330,000 12,000 $342,000 d. Theoretically, the market value after the split will be reduced to $17.50 per share, one-half the value of the shares before the 2-for-1 split. In reality, this may not be the exact result because of other market factors. 11-89 PROBLEM 11-23B a. b. c. $250,000 5,000 shares = $50 per share $50 par value per share x 8% = $4 per share $2,000,000 + $500,000 = $2,500,000; $2,500,000 100,000 shares = $25 per share The par value of the preferred stock is $50 per share. This is a value that is assigned to the stock when the corporation was formed or in a later request for an additional stock issue. This value is usually unrelated to the market value. However, with preferred stock the market value and the par value are more closely aligned. The difference between market value and par value of preferred stock is usually driven by the difference between current interest rates and the amount of dividend the stock is paying. 1. 100,000 x 3 = 300,000 shares outstanding after the split. 2. No amount will be transferred from retained earnings. 3. Theoretically, the market price will be $12 ($36 3). d. e. 11-90 PROBLEM 11-24B Note: This exercise can be used to assess writing skills. If a more comprehensive answer is desired, this exercise can be assigned as a short research project. Under common law, partners in a partnership have joint liability. This means that any and all partners are responsible for the debts of a partnership. This puts the personal assets of all of the partners at risk. Any partner can bind a partnership to a business agreement. In this case, all of the personal assets of Salvy are at risk. Even though he did not personally order the shipment, as a partner in the partnership, he is liable for partnership debts. One of the primary advantages of the corporate form of organization is limited liability. Since a corporation is a separate legal entity, the assets of the owners are separate from that of the business. If this had been a corporation, only the investment that Salvy had made in the business would be lost. He would not be held personally liable for debts and claims of the business. 11-91 PROBLEM 11-25B Baskin, Inc. Statements Model Balance Sheet Assets = Liab. + S. Equity + NA + + NA + NA NA NA NA + NA NA NA NA NA NA + + + + + + NA NA Income Statement Rev. Exp. = Net Inc. NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Stmt. of Cash Flows + FA FA NA + FA + FA NA + FA NA NA FA Event 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11-92 PROBLEM 11-26B (Appendix) a. MCPL Financial Statements Income Statement For the Year Ended December 31, 2009 Revenue Expenses Net Income Balance Sheet As of December 31, 2009 Assets Cash1 Facilities and Equipment Less: Accumulated Depreciation Total Assets Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 1 $120,000 (105,000) $ 15,000 $ 90,000 $450,000 (25,000) 425,000 $515,000 $ $500,000 15,000 515,000 $515,000 -0- $500,000 $450,000 + $120,000 $80,000 = $90,000 11-93 PROBLEM 11-26B a. (cont.) (Appendix) MCPL Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Inflow from Revenue Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities: Outflow for Facilities and Equipment Net Cash Flow from Investing Activities Cash Flows From Financing Activities: Inflow from the Issue of Stock Net Cash Flow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance $120,000 (80,000) $ 40,000 (450,000) (450,000) 500,000 500,000 90,000 -0$ 90,000 b. Worksheet provided for instructor's use: = Assets Net Assets Fac. & Perm. Temp. = Rest. Cash Equip. Rest. Unrest. 500,000 500,000 (450,000) 450,000 120,000 120,000 (80,000) (80,000) (25,000) (25,000) 90,000 425,000 = -0-0515,000 Event 1, 2. 3. 4. 5. Tot. Cash Flows 500,000 OA (450,000) IA 120,000 OA (80,000) OA NA 90,000 NC 11-94 PROBLEM 11-26B b. (cont.) (Appendix) MCPL Financial Statements Statement of Activities For the Year Ended December 31, 2009 Changes in Unrestricted Net Assets Donor Contributions Revenues Expenses Depreciation Expense Net Change in Unrestricted Net Assets Changes in Temporarily Restricted Assets Changes in Permanently Restricted Assets Increase in Net Assets Net Assets at the Beginning of the Year Net Assets at the End of the Year Statement of Financial Position As of December 31, 2009 Assets Cash Facilities and Equipment Less: Accumulated Depreciation Total Assets Net Assets Permanently Restricted Assets Temporarily Restricted Assets Unrestricted Assets Total Net Assets $ 0-0515,000 $515,000 $ 90,000 $450,000 (25,000) 425,000 $515,000 $500,000 120,000 (80,000) (25,000) $515,000 -0-0515,000 -0$515,000 11-95 PROBLEM 11-26B b. (cont.) (Appendix) MCPL Statement of Cash Flows For the Year Ended December 31, 2009 Cash Flows From Operating Activities: Unrestricted Donor Contributions Inflow from Revenues Outflow for Expenses Net Cash Flow from Operating Activities Cash Flows From Investing Activities: Outflow for Facilities Equipment Net Cash Flow from Investing Activities Cash Flows From Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance $500,000 120,000 (80,000) $540,000 (450,000) (450,000) -090,000 -0$ 90,000 11-96
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