14
ANSWERS CHAPTER TO QUESTIONS
01.
(a)
(b)
(c)
02.
a.
b.
03.
a.
b.
Separate legal existence. A corporation is separate and distinct from its owners and it acts in its
own name rather than in the name of its stockholders. In contrast to a partnership, the acts of the
owners (stockholders) do not bind the corporation unless the owners are duly appointed agents of
the corporation.
Limited liability of stockholders. Because of its separate legal existence, creditors of a corporation ordinarily have recourse only to corporate assets to satisfy their claims. Thus, the liability of
stockholders is normally limited to their investment in the corporation.
Transferable ownership rights. Ownership of a corporation is shown in shares of capital stock.
The shares are transferable units. Stockholders may dispose of part or all of their interest by
simply selling their stock. The transfer of ownership to another party is entirely at the discretion of
the stockholder.
Corporation management is an advantage to a corporation because it can hire professional
managers to run the company. Corporation management is a disadvantage to a corporation
because it prevents owners from having an active role in directly managing the company.
Two other disadvantages of a corporation are government regulations and additional taxes. A
corporation is subject to numerous state and federal regulations. For example, state laws prescribe the requirements for issuing stock, and federal securities laws govern the sale of stock to
the general public. Corporations must pay both federal and state income taxes. These taxes are
substantial. In addition, stockholders must pay income taxes on cash dividends received.
(1)
A charter is a document that creates a corporation. A charter is also referred to as the articles of incorporation.
(2) The by-laws are the internal rules and procedures for conducting the affairs of a corporation. They also indicate the powers and relationships of the stockholders, directors, and
officers of the corporation.
(3) Organization costs are costs incurred in the formation of a corporation. In accounting,
organization costs are classified as an intangible asset, and they are generally amortized
over a period of at least five years.
Disagree. A corporation must be incorporated in only one state. It is to the company's advan-tage
to incorporate in a state whose laws are favorable to the corporate form of business orga-nization.
A corporation may incorporate in a state in which it does not have a headquarters office or major
operating facilities.
04.
In the absence of restrictive provisions, the basic ownership rights of common stockholders are the
rights to:
(1) vote for the election of the board of directors and in corporate actions that require stockholders'
approval.
(2) share in corporate earnings.
(3) maintain the same percentage ownership when additional shares of common stock are issued
(the preemptive right).
(4) share in assets upon liquidation.
05.
a.
06.
Each of the three basic financial statements for a corporation differs from those for a proprietorship.
The income statement for a corporation will have income tax expense. For a corporation, a retained
earnings statement is prepared to show the changes in retained earnings during the period. In the
balance sheet, the owner's equity section is called the stockholders' equity section.
The two principal components of stockholders' equity for a corporation are paid-in capital (the
investment of cash and other assets in the corporation by stockholders in exchange for capital
stock) and retained earnings. The principal source of retained earnings is net income.
b. Paid-in capital is the term used to describe the total amount paid-in on capital stock. Paid-in capital
may result through the sale of common stock, preferred stock, or treasury stock.
07.
The maximum number of shares that a corporation is legally allowed to issue is the number authorized. Leno Corporation is authorized to sell 100,000 shares. Of these shares, 70,000 shares have
been issued. Outstanding shares are those issued shares which have not been reacquired by the
corporation; in other words, issued shares less treasury shares. Leno has 63,000 shares outstanding
(70,000 issued less 7,000 treasury).
08.
The par value of common stock has no effect on its market value. Par value is a legal amount per
share which usually indicates the minimum amount at which a share of stock can be issued. The
market value of stock depends on a number of factors, including the company's anticipated future
earnings, its expected dividend rate per share, its current financial position, the current state of the
economy, and the current state of the securities markets. Therefore, either investment mentioned in
the question could be the better investment, based on the above factors and future potential. The
relative par values should have no effect on the investment decision.
09.
Among the factors which influence the market value of stock are the company's anticipated future
earnings, its expected dividend rate per share, its current financial position, the current state of the
economy, and the current state of the securities markets.
10.
The issuance of capital stock does not have any effect on the issuer's net income. If stock is issued at
a price above par, the excess is credited to a stockholders' equity account, Paid-in Capital in Ex-cess
of Par. This excess is part of the company's paid-in capital.
11.
The sale of common stock below par value is not permitted in most states.
12.
When stock is issued for services or noncash assets, the cost should be measured at either the fair
market value of the consideration given up (in this case, the stock) or the fair market value of the
consideration received (in this case, the land), whichever is more clearly evident. In this case, the fair
market value of the stock is more objectively determinable than that of the land, since the stock is
actively traded in the securities market. The appraised value of the land is merely an estimate of the
land's value, while the market price of the stock is the amount the stock was actually worth on the date
of exchange. Therefore, the land should be recorded at $95,000, the common stock at $20,000, and
the excess ($75,000) as paid-in capital in excess of par value.
13.
A corporation may acquire treasury stock (1) to reissue the shares to officers and employees under
bonus and stock compensation plans, (2) to increase trading of the company's stock in the securities
market in the hopes of enhancing its market value, (3) to have additional shares available for use in the
acquisition of other companies, (4) to reduce the number of shares outstanding and, thereby, increase
earnings per share, and (5) to rid the company of disgruntled investors.
14.
When treasury stock is purchased, treasury stock is debited and cash is credited at cost ($12,000 in
this example). Treasury stock is a contra stockholders' equity account and cash is an asset. Thus, this
transaction has (a) no effect on net income, (b) decreases total assets, (c) has no effect on total paidin capital, and (d) decreases total stockholders' equity.
15.
When treasury stock is resold at a price above original cost, Cash is debited for the amount of the
proceeds ($14,500), Treasury Stock is credited at cost ($12,000), and the excess ($2,500) is cred-ited
to Paid-in Capital from Treasury Stock. Cash is an asset, and the other two accounts are part of
stockholders' equity. Therefore, this transaction has (a) no effect on net income, (b) increases total
assets, (c) increases total paid-in capital, and (d) increases total stockholders' equity.
16.
(a)
(b)
Common stock and preferred stock both represent ownership of the corporation. Common stock
signifies the basic residual ownership; preferred stock is ownership with certain privileges or
preferences. Preferred stockholders typically have a preference as to dividends and as to assets
in the event of liquidation. However, preferred stockholders generally do not have voting rights.
Some preferred stocks possess the additional features of being cumulative. Most preferred stock
is cumulativepreferred stockholders must be paid both current year dividends and unpaid prior
year dividends before common stockholders receive any dividends.
(c)
Dividends in arrears are disclosed in the notes to the balance sheet.
17.
When convertible preferred stock is converted into common stock, the stockholder simply ex-changes
shares of preferred stock for shares of common stock according to a preestablished rate. To record the
conversion, the amount paid-in on the preferred stock (Preferred Stock and Paid-in Capital in Excess of
Par ValuePreferred) is transferred into the appropriate common stock ac-counts (Common Stock and
Paid-in Capital in Excess of ParCommon). This entry has no effect on (a) total assets, (b) total
liabilities, or (c) total stockholders' equity.
18.
The formula for computing book value per share when a corporation has only common stock outstanding is:
Total
Stockholders'
Equity
Number of
Book Value
Common Shares =
per Share
Outstanding
Book value per share represents the equity a common stockholder has in the net assets of the corporation from owning one share of stock.
19.
Par value is a legal amount per share, often set at an arbitrarily selected amount, which usually
indicates the minimum amount at which a share of stock can be issued. Book value per share represents the equity a common stockholder has in the net assets of the corporation from owning one
share of stock. If the corporation has been reinvesting some of its earnings over the years, or if the
stock was originally issued above par, or both, the book value per share will exceed the par value.
Market value is generally unrelated to par value and at best only remotely related to book value. A
stock's market value will reflect many factors, including the company's anticipated future earnings, its
expected dividend rate per share, its current financial position, the current state of the economy, and
the current state of the securities markets.
20.
The answers are summarized in the table below:
Account
(a)
(b)
(c)
(d)
Common Stock
Paid-in Capital in Excess of Par Value
Retained Earnings
Treasury Stock
(e)
(f)
(g)
Paid-in Capital from Treasury Stock
Paid-in Capital in Excess of Stated Value
Preferred Stock
Classification
Paid-in capitalcapital stock
Paid-in capitaladditional paid-in capital
Retained earnings
Deducted from total paid-in capital and retained
earnings
Paid-in capitaladditional paid-in capital
Paid-in capitaladditional paid-in capital
Paid-in capitalcapital stock
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 14-1
The advantages and disadvantages of a corporation are as follows:
Advantages
Separate legal existence
Limited liability of stockholders
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management
professional management
Disadvantages
Corporation management
separation of ownership and
management
Government regulations
Additional taxes
BRIEF EXERCISE 14-2
Dec. 31Income Summary ...................................................
Retained Earnings ...................................
500,000
500,000
BRIEF EXERCISE 14-3
May 10Cash (1,000 X $15)..................................................
Common Stock (1,000 X $10)..................
Paid-in Capital in Excess of Par
Value (1,000 X $5) .................................
15,000
10,000
5,000
BRIEF EXERCISE 14-4
June
1
Cash (2,000 X $6).............................................
Common Stock (2,000 X $1)....................
Paid-in Capital in Excess of Stated
Value (2,000 X $5) .................................
12,000
2,000
10,000
BRIEF EXERCISE 14-5
Land (5,000 X $15)..............................................................
Common Stock (5,000 X $10) ....................................
Paid-in Capital in Excess of Par Value.....................
(5,000 X $5)
75,000
50,000
25,000
BRIEF EXERCISE 14-6
July 1Treasury Stock (500 X $8)........................................
Cash..........................................................
4,000
Sept. 1
3,000
4,000
Cash (300 X $10)..............................................
Treasury Stock (300 X $8).......................
Paid-in Capital from Treasury
Stock (300 X $2) ....................................
2,400
600
BRIEF EXERCISE 14-7
Cash (5,000 X $110)............................................................
Preferred Stock (5,000 X $100)..................................
Paid-in Capital in Excess of Par Value
Preferred Stock (5,000 X $10).................................
550,000
500,000
50,000
BRIEF EXERCISE 14-8
Stockholders' equity
Paid-in capital
Capital stock
Common stock, $10 par value, 5,000 shares
issued and 4,500 shares outstanding
Additional paid-in capital
In excess of par valuecommon stock
Total paid-in capital
Retained earnings
Total paid-in capital and retained earnings
Less: Treasury stockcommon (500 shares)
$50,000
010,000
60,000
039,000
99,000
007,000
Total stockholders' equity
$92,000
BRIEF EXERCISE 14-9
Book value per share = $20.50 ($820,000 40,000).
SOLUTIONS TO EXERCISES
EXERCISE 14-1
(a) Jan. 10 Cash (70,000 X $5) .....................................
Common Stock...................................
350,000
July 01 Cash (30,000 X $7) .....................................
Common Stock (30,000 X $5) ............
Paid-in Capital in Excess of Par
Value (30,000 X $2)..........................
210,000
(b) Jan. 10 Cash (70,000 X $5) .....................................
Common Stock (70,000 X $1) ............
Paid-in Capital in Excess of
Stated Value (70,000 X $4)..............
350,000
July 01 Cash (30,000 X $7) .....................................
Common Stock (30,000 X $1) ............
Paid-in Capital in Excess of
Stated Value (30,000 X $6)..............
210,000
350,000
150,000
60,000
70,000
280,000
30,000
180,000
EXERCISE 14-2
Mar. 2Organization Costs...................................................
Common Stock (5,000 X $1)....................
Paid-in Capital in Excess of Par
ValueCommon Stock........................
June 12
25,000
5,000
20,000
Cash..................................................................
Common Stock (60,000 X $1)..................
Paid-in Capital in Excess of Par
ValueCommon Stock........................
375,000
July 11Cash (1,000 X $108)................................................
Preferred Stock (1,000 X $100)...............
Paid-in Capital in Excess of Par
ValuePreferred Stock .......................
(1,000 X $8)
108,000
60,000
315,000
100,000
8,000
EXERCISE 14-2 (Continued)
Nov. 28
Treasury Stock ................................................
Cash..........................................................
80,000
80,000
EXERCISE 14-3
(1) Land.............................................................................
Common Stock (5,000 X $20).............................
Paid-in Capital in Excess of Par Value..............
115,000
(2) Land (20,000 X $11) ....................................................
Common Stock (20,000 X $10) ..........................
Paid-in Capital in Excess of Par Value..............
(20,000 X $1)
220,000
100,000
15,000
200,000
20,000
EXERCISE 14-4
(a) Mar. 1
July 1
Sept. 1
(b) Sept. 1
Treasury Stock (50,000 X $15) ..................
Cash ....................................................
750,000
Cash (10,000 X $16) ...................................
Treasury Stock (10,000 X $15)...........
.
Paid-in Capital from Treasury
Stock (10,000 X $1)..........................
160,000
Cash (8,000 X $14) .....................................
Paid-in Capital from Treasury Stock ........
(8,000 X $1)
Treasury Stock (8,000 X $15).............
.
112,000
8,000
Cash (8,000 X $11) .....................................
Paid-in Capital from Treasury Stock ........
Retained Earnings .....................................
Treasury Stock (8,000 X $15).............
.
88,000
10,000
22,000
750,000
150,000
10,000
120,000
120,000
EXERCISE 14-5
(a) Feb. 1
July 1
Cash (30,000 X $51) ...............................
Preferred Stock...............................
(30,000 X $50)
Paid-in Capital in Excess of
Par ValuePreferred Stock .......
(30,000 X $1)
1,530,000
Cash (10,000 X $57) ...............................
Preferred Stock...............................
(10,000 X $50)
Paid-in Capital in Excess of
Par ValuePreferred Stock .......
(10,000 X $7)
570,000
1,500,000
30,000
500,000
70,000
(b)
Preferred Stock
Date
Feb.
July
Explanation
Ref.
Debit
Credit
Balance
1,500,000 1,500,000
0,500,000 2,000,000
1
1
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Feb.
July
Explanation
1
1
Ref.
Debit
Credit
Balance
0,030,000 0,030,000
0,070,000 0,100,000
(c) Preferred stocklisted first in paid-in capital under capital stock.
Paid-in Capital in Excess of Par ValuePreferred Stocklisted first un-der
additional paid-in capital.
EXERCISE 14-6
(a) Preferred Stock (2,000 X $100)..................................
Common Stock (10,000 X $15) ..........................
Paid-in Capital in Excess of Par Value
Common Stock ................................................
200,000
150,000
50,000
(b) The entry is the same as in (a) because market values are ignored in
accounting for the conversion of preferred stock.
(c) Preferred Stock (2,000 X $100)..................................
Common Stock (16,000 X $10) ..........................
Paid-in Capital in Excess of Par Value
Common Stock ................................................
200,000
160,000
40,000
EXERCISE 14-7
May 2Cash (10,000 X $12)..................................................
Common Stock (10,000 X $5)..................
Paid-in Capital in Excess of Par
ValueCommon Stock........................
(10,000 X $7)
10
15
31
120,000
50,000
70,000
Cash..................................................................
Preferred Stock (10,000 X $50)...............
Paid-in Capital in Excess of Par
ValuePreferred Stock .......................
(10,000 X $10)
600,000
Treasury Stock ................................................
Cash..........................................................
13,000
Cash (500 X $15)..............................................
Treasury Stock (500 X $13).....................
Paid-in Capital from Treasury
Stock (500 X $2) ....................................
7,500
500,000
100,000
13,000
6,500
1,000
EXERCISE 14-8
MEMO
To:
President
From:
Your name , Chief Accountant
Re:
Questions about Stockholders' Equity Section
Your memorandum about the stockholders' equity section was received this
morning. I hope the following will answer your questions.
(a) Common stock outstanding is 585,000 shares. (Issued shares 600,000 less
treasury shares 15,000.)
(b) The stated value of the common stock is $3 per share. (Common stock
issued $1,800,000 600,000 shares.)
(c) The par value of the preferred stock is $100 per share. (Preferred stock
$600,000 6,000 shares.)
(d) The dividend rate is 6% ($36,000 $600,000).
(e) The Retained Earnings balance is still $1,158,000. Cumulative dividends in
arrears are only disclosed in the notes to the financial statements.
If I can be of further help, please contact me.
EXERCISE 14-9
(a)
ALUMINUM COMPANY OF AMERICA
Stockholders' equity (in millions of dollars)
Paid-in capital
Capital stock
Preferred stock, $100 par value, $3.75,
cumulative, 660,000 shares authorized,
660,000 issued and outstanding.......................
Common stock, $1 par value,
300,000,000 shares authorized,
88,300,000 issued and outstanding..................
Total capital stock.........................................
Additional paid-in capital .............................................
Total paid-in capital ......................................
Retained earnings ................................................................
Total stockholders' equity ...........................................
$0,066.0
00,088.3
154.3
00,680.5
834.8
03,750.2
$4,585.0
(b) Total stockholders' equity ...........................................................
Less: Preferred stock equity (par value)...................................
Common stock equity..................................................................
$4,585.0
00,066.0
$4,519.0
Common shares outstanding (in millions) ................................
88.3
Book value per share ($4,519 88.3) ..........................................
$51.18
EXERCISE 14-10
Paid-in Capital
Account
Common Stock
Preferred Stock
Treasury StockCommon
Paid-in Capital in Excess of Par
ValuePreferred Stock
Paid-in Capital in Excess of Stated
ValueCommon Stock
Paid-in Capital from Treasury
Stock
Retained Earnings
Capital
Stock
Additional
Retained
Earnings
Other
X
X
X
X
X
X
X
EXERCISE 14-11
(a)
(b)
$4,000,000
$4,000,000
Total stockholders' equity
Less:.. Preferred stock equity
Par value
Call price (10,000 X $60)
Dividends in arrears ($50,000 X 1)
Common stock equity
00,000,000
$3,500,000
(
00,600,000)
00,050,000
(
$3,350,000
Common shares outstanding
00,200,000
00,200,000
Book value per share
00,0$17.50
00,0$16.75
00,500,000)
(
SOLUTIONS TO PROBLEMS
PROBLEM 14-1A
(a) Jan. 10
Mar. 01
Apr. 01
May 01
Aug. 01
Sept. 01
Cash (100,000 X $3) .................................
Common Stock (100,000 X $1) ........
Paid-in Capital in Excess of
Stated ValueCommon
Stock (100,000 X $2)......................
300,000
Cash (10,000 X $51) .................................
Preferred Stock (10,000 X $50) .......
Paid-in Capital in Excess of
Par ValuePreferred Stock .........
(10,000 X $1)
510,000
Land ..........................................................
Common Stock (25,000 X $1) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($85,000 $25,000) .............
85,000
Cash (75,000 X $4) ...................................
Common Stock (75,000 X $1) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock (75,000 X $3)........................
300,000
Organization Costs ..................................
Common Stock (10,000 X $1) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($50,000 $10,000) .............
50,000
Cash (5,000 X $6) .....................................
Common Stock (5,000 X $1) ............
Paid-in Capital in Excess of
Stated ValueCommon
30,000
100,000
200,000
500,000
10,000
25,000
60,000
75,000
225,000
10,000
40,000
5,000
Stock (5,000 X $5)..........................
25,000
PROBLEM 14-1A (Continued)
Nov. 01
Cash (2,000 X $53) ...................................
Preferred Stock (2,000 X $50) .........
Paid-in Capital in Excess of
Par ValuePreferred Stock .........
(2,000 X $3)
106,000
100,000
6,000
(b)
Preferred Stock
Date
Mar.
Nov.
Explanation
1
1
Ref.
Debit
Balance
500,000
100,000
500,000
600,000
Credit
Balance
010,000
006,000
J1
J1
Credit
010,000
016,000
Credit
Balance
100,000
025,000
075,000
010,000
005,000
100,000
125,000
200,000
210,000
215,000
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Mar.
Nov.
Explanation
Ref.
Debit
J1
J1
1
1
Common Stock
Date
Jan. 10
Apr.
1
May
1
Aug.
1
Sept.
1
Explanation
Ref.
J1
J1
J1
J1
J1
Debit
Paid-in Capital in Excess of Stated ValueCommon Stock
Date
Explanation
Ref.
Jan. 10
Apr.
1
May
1
Aug.
1
Sept.
1
Debit
J1
J1
J1
J1
J1
Credit
Balance
200,000
060,000
225,000
040,000
025,000
200,000
260,000
485,000
525,000
550,000
PROBLEM 14-1A (Continued)
(c)
BRAZIL CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
6% Preferred stock $50 par
value, 20,000 shares
authorized and 12,000
shares issued.............................
Common stock, no par, $1
stated value, 500,000 shares
authorized, 215,000 shares
issued..........................................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock...........................
In excess of stated value
common stock ...........................
Total additional paid-in
capital..................................
Total paid-in capital ..............
$0,600,000
00,215,000
815,000
$016,000
0550,000
00,566,000
$1,381,000
PROBLEM 14-2A
(a) Mar. 01
Treasury Stock (5,000 X $7) ........................
Cash ......................................................
Cash (1,000 X $10) .......................................
Treasury Stock (1,000 X $7) ................
Paid-in Capital from Treasury
Stock (1,000 X $3)..............................
31
6,000
1,000
Income Summary .........................................
Retained Earnings................................
Dec. 01
18,000
Cash (1,000 X $6) .........................................
Paid-in Capital from Treasury Stock ..........
(1,000 X $1)
Treasury Stock (1,000 X $7) ................
Sept. 01
10,000
Cash (2,000 X $9) .........................................
Treasury Stock (2,000 X $7) ................
Paid-in Capital from Treasury
Stock (2,000 X $2)..............................
June 01
35,000
50,000
35,000
7,000
3,000
14,000
4,000
7,000
50,000
(b)
Paid-in from Capital Treasury Stock
Date
June
Sept.
Dec.
Explanation
1
1
1
Ref.
Debit
Debit
J12
J12
03,000
07,000
06,000
Credit
Balance
07,000
35,000
28,000
01,000
Ref.
Balance
03,000
04,000
J12
J12
J12
Credit
35,000
Treasury Stock
Date
Mar.
June
Explanation
1
1
Sept.
Dec.
1
1
J12
J12
14,000
07,000
14,000
07,000
Credit
Balance
50,000
100,000
150,000
PROBLEM 14-2A (Continued)
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Ref.
Balance
Debit
J12
(c)
SANTANA CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
Common stock, $1 par,
400,000 shares issued and
399,000 outstanding ..................
Additional paid-in capital
In excess of par value...................
From treasury stock .....................
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings ........................................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (1,000 shares
at cost).............................................
Total stockholders'
equity...................................
$0,400,000
$500,000
0006,000
00,506,000
906,000
00,150,000
1,056,000
00,007,000
$1,049,000
PROBLEM 14-3A
(a) Feb. 01
Mar. 20
June 14
Sept. 03
Dec. 31
Cash ..............................................................
Common Stock (4,000 X $5) ................
Paid-in Capital in Excess of
Stated ValueCommon Stock ........
25,000
Treasury StockCommon..........................
(1,000 X $8)
Cash ......................................................
8,000
Cash ..............................................................
Paid-in Capital from Common
Treasury Stock ..................................
Treasury StockCommon ..................
(4,000 X $8)
34,000
Patent ............................................................
Common Stock (2,000 X $5) ................
Paid-in Capital in Excess of
Stated ValueCommon Stock ........
13,000
Income Summary .........................................
Retained Earnings................................
215,000
20,000
5,000
8,000
2,000
32,000
10,000
3,000
215,000
(b)
Preferred Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
Credit
Balance
0,300,000
Common Stock
Date
Jan.
Feb.
Explanation
1
1
Balance
Ref.
J1
Debit
Credit
Balance
20,000
1,000,000
1,020,000
Sept.
3
J1
10,000
1,030,000
PROBLEM 14-3A (Continued)
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
Credit
Balance
015,000
Paid-in Capital in Excess of Stated ValueCommon Stock
Date
Jan.
Feb.
Sept.
Explanation
1
1
3
Balance
Ref.
Debit
Balance
005,000
003,000
400,000
405,000
408,000
Credit
Balance
215,000
488,000
703,000
Credit
Balance
032,000
J1
J1
Credit
040,000
048,000
016,000
Credit
Balance
002,000
002,000
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Balance
Ref.
Debit
J1
Treasury StockCommon
Date
Jan.
Mar.
June
Explanation
1
20
14
Balance
Ref.
J1
J1
Debit
8,000
Paid-in Capital from Treasury StockCommon
Date
June
Explanation
14
Ref.
J1
Debit
PROBLEM 14-3A (Continued)
(c)
CHUNG CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
10% Preferred stock, $100
par value, noncumulative,
5,000 shares authorized,
3,000 shares issued and
outstanding ................................
Common stock, no par, $5
stated value, 300,000 shares
authorized, 206,000 shares
issued and 204,000 shares
outstanding ................................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock...........................
In excess of stated value
common stock ...........................
From common treasury
stock............................................
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings ........................................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (2,000 common
shares).............................................
Total stockholders'
equity...................................
(d) Total stockholders' equity ...................................
Less: Preferred stock equity ..............................
Common stock equity..........................................
$0,300,000
01,030,000
1,330,000
$015,000
408,000
0002,000
00,425,000
1,755,000
00,703,000
2,458,000
00,016,000
$2,442,000
$2,442,000
00,300,000
$2,142,000
Common shares outstanding..............................
Book value per share ...........................................
($2,142,000 204,000)
204,000
$10.50
PROBLEM 14-4A
(a) Feb. 01
Mar. 01
July 01
Sept. 01
Dec. 01
Dec. 31
Land ..............................................................
Preferred Stock (1,000 X $100) ...........
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
($125,000 $100,000)
125,000
Cash (1,000 X $120) .....................................
Preferred Stock (1,000 X $100) ...........
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
(1,000 X $20)
120,000
Preferred Stock (2,000 X $100) ...................
Paid-in Capital in Excess of Par Value
Preferred Stock (2,000 X $10) ..................
Common Stock (20,000 X $5) ..............
Paid-in Capital in Excess of Par
ValueCommon Stock ....................
($220,000 $100,000)
200,000
Patent (400 X $125) ......................................
Preferred Stock (400 X $100) ..............
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
(400 X $25)
50,000
Preferred Stock (1,000 X $100) ...................
Paid-in Capital in Excess of Par Value
Preferred Stock (1,000 X $15) ..................
Common Stock (10,000 X $5) ..............
Paid-in Capital in Excess of Par
ValueCommon Stock ....................
($115,000 $50,000)
100,000
Income Summary .........................................
Retained Earnings................................
210,000
100,000
25,000
100,000
20,000
20,000
100,000
120,000
40,000
10,000
15,000
50,000
65,000
210,000
PROBLEM 14-4A (Continued)
(b)
Preferred Stock
Date
Jan.
Feb.
Mar.
July
Sept.
Dec.
Explanation
1
1
1
1
1
1
Balance
Ref.
Debit
J2
J2
J2
J2
J2
100,000
Ref.
Debit
Credit
100,000
100,000
200,000
040,000
Balance
400,000
500,000
600,000
400,000
440,000
340,000
Common Stock
Date
Jan.
July
Dec.
Explanation
1
1
1
Balance
Balance
100,000
050,000
J2
J2
Credit
350,000
450,000
500,000
Credit
Balance
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Jan.
Feb.
Mar.
July
Sept.
Dec.
Explanation
1
1
1
1
1
1
Balance
Ref.
J2
J2
J2
J2
J2
Debit
025,000
020,000
020,000
010,000
015,000
040,000
065,000
085,000
065,000
075,000
060,000
Paid-in Capital in Excess of Par ValueCommon Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
Credit
Balance
700,000
July
Dec.
1
1
J2
J2
120,000
065,000
820,000
885,000
PROBLEM 14-4A (Continued)
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Balance
Ref.
Debit
J2
Credit
Balance
210,000
300,000
510,000
(c)
JACKIE REMMERS CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
Preferred stock, $100 par
value, 10%, convertible,
10,000 shares authorized,
3,400 shares issued...................
Common stock, $5 par value,
200,000 shares authorized,
100,000 shares issued...............
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred .....................................
In excess of par value
common......................................
Total additional paid-in
capital..................................
Total paid-in capital ......................
Retained earnings ........................................
Total stockholders' equity............
$0,340,000
00,500,000
840,000
$060,000
0885,000
00,945,000
1,785,000
00,510,000
$2,295,000
PROBLEM 14-5A
(a)
IRELAND CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
8% Preferred stock, $100
par value, noncumulative,
4,000 shares issued...................
Common stock, no par, $10
stated value, 150,000 shares
issued, and 142,000 outstanding ......................................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock...........................
In excess of stated value
common stock ...........................
From treasury stock .....................
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings.................................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (8,000
common shares) .............
Total stockholders'
equity...................................
$0,400,000
01,500,000
1,900,000
$280,000
900,000
0006,000
01,186,000
3,086,000
01,276,000
4,362,000
00,088,000
$4,274,000
PROBLEM 14-5A (Continued)
(b) The book value of the common stock is $27.00 computed as follows:
Total stockholders' equity
Less: Preferred stock equity
Call price ($110 X 4,000)
Common stock equity
Common shares outstanding
Book value per share ($3,834,000 142,000)
$4,274,000
00,440,000
$3,834,000
142,000
$27.00
Note: No preferred dividends are assigned to the preferred stock equity
because the preferred stock is noncumulative.
PROBLEM 14-6A
(a) (1) Land .................................................................
Preferred Stock (1,200 X $100) ..............
Paid-in Capital in Excess of Par
ValuePreferred Stock.......................
144,000
(2) Cash (400,000 X $9.625).................................
Common Stock (400,000 X $2.50) .........
Paid-in Capital in Excess of Stated
ValueCommon Stock .......................
3,850,000
(3) Treasury StockCommon.............................
(1,500 X $10)
Cash.........................................................
15,000
(4) Cash (500 X $14) .............................................
Treasury StockCommon ....................
(500 X $10)
Paid-in Capital from Treasury
Stock .....................................................
7,000
120,000
24,000
1,000,000
2,850,000
15,000
5,000
2,000
(b)
LITTELL CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
10% Preferred stock, $100
par value, noncumulative,
20,000 shares authorized,
1,200 shares issued and
outstanding ..................................
Common stock, no par, $2.50
stated value, 1,000,000
shares authorized, 400,000
shares issued, and 399,000
outstanding ..................................
$0,120,000
01,000,000
Total capital stock...................
1,120,000
PROBLEM 14-6A (Continued)
LITTELL CORPORATION (Continued)
Additional paid-in capital
In excess of par value
preferred stock.........................
In excess of stated value
common stock .........................
From treasury stock
common....................................
Total additional paid-in
capital................................
Total paid-in capital ............
Retained earnings...............................
Total paid-in capital and
retained earnings .............
Less: Treasury stock (1,000
common shares)...................
Total stockholders'
equity.................................
$0,024,000
02,850,000
00,002,000
02,876,000
3,996,000
00,082,000
4,078,000
00,010,000
$4,068,000
PROBLEM 14-1B
(a) Jan. 10
Mar. 01
Apr. 01
May 01
Aug. 01
Sept. 01
Cash (80,000 X $3) ...................................
Common Stock (80,000 X $2) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock (80,000 X $1)........................
240,000
Cash (5,000 X $104) .................................
Preferred Stock (5,000 X $100) .......
Paid-in Capital in Excess of
Par ValuePreferred Stock .........
(5,000 X $4)
520,000
Land ..........................................................
Common Stock (24,000 X $2) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($80,000 $48,000) .............
80,000
Cash (80,000 X $4) ...................................
Common Stock (80,000 X $2) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock (80,000 X $2)........................
320,000
Organization Costs ..................................
Common Stock (10,000 X $2) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($50,000 $20,000) .............
50,000
Cash (10,000 X $5) ...................................
Common Stock (10,000 X $2) ..........
Paid-in Capital in Excess of
Stated ValueCommon
Stock (10,000 X $3)........................
50,000
160,000
80,000
500,000
20,000
48,000
32,000
160,000
160,000
20,000
30,000
20,000
30,000
PROBLEM 14-1B (Continued)
Nov. 01
Cash (1,000 X $108) .................................
Preferred Stock (1,000 X $100) .......
Paid-in Capital in Excess of
Par ValuePreferred Stock .........
(1,000 X $8)
108,000
100,000
8,000
(b)
Preferred Stock
Date
Mar.
Nov.
Explanation
1
1
Ref.
Debit
Balance
500,000
100,000
500,000
600,000
Credit
Balance
020,000
008,000
J5
J5
Credit
020,000
028,000
Credit
Balance
160,000
048,000
160,000
020,000
020,000
160,000
208,000
368,000
388,000
408,000
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Mar.
Nov.
Explanation
Ref.
Debit
J5
J5
1
1
Common Stock
Date
Jan. 10
Apr.
1
May
1
Aug.
1
Sept.
1
Explanation
Ref.
J5
J5
J5
J5
J5
Debit
Paid-in Capital in Excess of Stated ValueCommon Stock
Date
Explanation
Ref.
Jan. 10
Apr.
1
May
1
Aug.
1
Sept.
1
Debit
J5
J5
J5
J5
J5
Credit
Balance
080,000
032,000
160,000
030,000
030,000
080,000
112,000
272,000
302,000
332,000
PROBLEM 14-1B (Continued)
(c)
WETLAND CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
8% Preferred stock, $100 par
value, 10,000 shares
authorized, 6,000 shares
issued..........................................
Common stock, no par, $2
stated value, 500,000 shares
authorized, 204,000 shares
issued..........................................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock...........................
In excess of stated value
common stock ...........................
Total additional paid-in
capital..................................
Total paid-in capital ..............
$0,600,000
00,408,000
1,008,000
$028,000
0332,000
00,360,000
$1,368,000
PROBLEM 14-2B
(a) Mar. 01
Treasury Stock (5,000 X $8) ........................
Cash ......................................................
Cash (1,000 X $12) .......................................
Treasury Stock (1,000 X $8) ................
Paid-in Capital from Treasury
Stock (1,000 X $4)..............................
31
7,000
1,000
Income Summary .........................................
Retained Earnings................................
Dec. 01
20,000
Cash (1,000 X $7) .........................................
Paid-in Capital from Treasury Stock ..........
(1,000 X $1)
Treasury Stock (1,000 X $8) ................
Sept. 01
12,000
Cash (2,000 X $10) .......................................
Treasury Stock (2,000 X $8) ................
Paid-in Capital from Treasury
Stock (2,000 X $2)..............................
June 01
40,000
50,000
40,000
8,000
4,000
16,000
4,000
8,000
50,000
(b)
Paid-in Capital from Treasury Stock
Date
June
Sept.
Dec.
Explanation
1
1
1
Ref.
Debit
Debit
J10
J10
J10
04,000
08,000
07,000
Credit
Balance
08,000
16,000
40,000
32,000
16,000
01,000
Ref.
Balance
04,000
04,000
J10
J10
J10
Credit
40,000
Treasury Stock
Date
Mar.
June
Sept.
Explanation
1
1
1
Dec.
1
J10
08,000
08,000
Credit
Balance
50,000
100,000
150,000
PROBLEM 14-2B (Continued)
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Ref.
Balance
Debit
J10
(c)
RAMOS CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
Common stock, $5 par,
100,000 shares issued and
99,000 outstanding ....................
Additional paid-in capital
In excess of par value...................
From treasury stock .....................
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings ........................................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (1,000 common
shares, at cost)...............................
Total stockholders'
equity...................................
$500,000
$200,000
0007,000
0207,000
707,000
0150,000
857,000
0008,000
$849,000
PROBLEM 14-3B
(a) Feb. 01
Apr. 14
Sept. 03
Nov. 10
Dec. 31
Cash ..............................................................
Common Stock (20,000 X $1) ..............
Paid-in Capital in Excess of
Stated ValueCommon Stock ........
($100,000 $20,000)
100,000
Cash ..............................................................
Paid-in Capital from Common
Treasury Stock ..................................
($28,000 $24,000)
Treasury StockCommon ..................
(6,000 X $4)
28,000
Patent ............................................................
Common Stock (5,000 X $1) ................
Paid-in Capital in Excess of
Stated ValueCommon Stock ........
($25,000 $5,000)
25,000
Treasury StockCommon..........................
Cash ......................................................
6,000
Income Summary .........................................
Retained Earnings................................
377,000
20,000
80,000
4,000
24,000
5,000
20,000
6,000
377,000
(b)
Preferred Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
Credit
Balance
0,400,000
Common Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Jan.
Feb.
Sept.
1
1
3
Balance
20,000
05,000
J5
J5
1,000,000
1,020,000
1,025,000
Credit
Balance
PROBLEM 14-3B (Continued)
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
0,080,000
Paid-in Capital in Excess of Stated ValueCommon Stock
Date
Jan.
Feb.
Sept.
Explanation
1
1
3
Balance
Ref.
Debit
J5
J5
Credit
Balance
1,400,000
080,000 1,480,000
020,000 1,500,000
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Balance
Ref.
Debit
J5
Credit
Balance
1,816,000
377,000 2,193,000
Treasury StockCommon
Date
Jan.
Apr.
Nov.
Explanation
1
14
10
Balance
Ref.
J5
J5
Debit
6,000
Credit
Balance
0,040,000
024,000 0,016,000
0,022,000
Paid-in Capital from Common Treasury Stock
Date
Explanation
Ref.
Debit
Credit
Balance
Apr.
14
J5
004,000 0,004,000
PROBLEM 14-3B (Continued)
(c)
CAPOZZA CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
12% Preferred stock, $50
par value, cumulative,
10,000 shares authorized,
8,000 shares issued and
outstanding ................................
Common stock, no par, $1
stated value, 2,000,000
shares authorized, 1,025,000
shares issued and 1,020,000
shares outstanding....................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock........................... $0,080,000
In excess of stated value
common stock ........................... 1,500,000
From common treasury
stock............................................ 00,004,000
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings (See Note X) ..................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (5,000 common
shares).............................................
Total stockholders'
equity...................................
$0,400,000
01,025,000
1,425,000
01,584,000
3,009,000
02,193,000
5,202,000
00,022,000
$5,180,000
(Note X: Dividends on preferred stock totaling $48,000 [8,000 X (12% X
$50)] are in arrears.)
PROBLEM 14-3B (Continued)
(d) Total stockholders' equity ...................................
Less: Preferred stock equity
Call price (8,000 X $55) ..........................
Dividends in arrears...............................
Common stock equity..........................................
$5,180,000
$440,000
0048,000
00,488,000
$4,692,000
Common shares outstanding..............................
1,020,000
Book value per share ...........................................
($4,692,000 1,020,000)
$4.60
PROBLEM 14-4B
(a) Feb. 01
Mar. 01
July 01
Sept. 01
Dec. 01
Dec. 31
Land ..............................................................
Preferred Stock (1,000 X $100) ...........
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
($125,000 $100,000)
125,000
Cash (1,000 X $120) .....................................
Preferred Stock (1,000 X $100) ...........
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
(1,000 X $20)
120,000
Preferred Stock (2,000 X $100) ...................
Paid-in Capital in Excess of Par Value
Preferred Stock (2,000 X $10) ..................
Common Stock (16,000 X $5) ..............
Paid-in Capital in Excess of Par
ValueCommon Stock ....................
($220,000 $80,000)
200,000
Patent (400 X $125) ......................................
Preferred Stock (400 X $100) ..............
Paid-in Capital in Excess of Par
ValuePreferred Stock ....................
(400 X $25)
50,000
Preferred Stock (1,000 X $100)....................
Paid-in Capital in Excess of Par Value
Preferred Stock (1,000 X $20) ..................
Common Stock (8,000 X $5) ................
Paid-in Capital in Excess of Par
ValueCommon Stock ....................
($120,000 $40,000)
100,000
Income Summary .........................................
Retained Earnings................................
260,000
100,000
25,000
100,000
20,000
20,000
80,000
140,000
40,000
10,000
20,000
40,000
80,000
260,000
PROBLEM 14-4B (Continued)
(b)
Preferred Stock
Date
Jan.
Feb.
Mar.
July
Sept.
Dec.
Explanation
1
1
1
1
1
1
Balance
Ref.
Debit
J2
J2
J2
J2
J2
100,000
Ref.
Debit
Credit
100,000
100,000
200,000
040,000
Balance
500,000
600,000
700,000
500,000
540,000
440,000
Common Stock
Date
Jan.
July
Dec.
Explanation
1
1
1
Balance
Balance
080,000
040,000
J2
J2
Credit
350,000
430,000
470,000
Credit
Balance
Paid-in Capital in Excess of Par ValuePreferred Stock
Date
Jan.
Feb.
Mar.
July
Sept.
Dec.
Explanation
1
1
1
1
1
1
Balance
Ref.
J2
J2
J2
J2
J2
Debit
025,000
020,000
020,000
010,000
020,000
050,000
075,000
095,000
075,000
085,000
065,000
Paid-in Capital in Excess of Par ValueCommon Stock
Date
Jan.
Explanation
1
Balance
Ref.
Debit
Credit
Balance
700,000
July
Dec.
1
1
J2
J2
140,000
080,000
840,000
920,000
PROBLEM 14-4B (Continued)
Retained Earnings
Date
Jan.
Dec.
Explanation
1
31
Balance
Ref.
Debit
J2
Credit
Balance
260,000
300,000
560,000
(c)
SHIRLEY DENSON CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
10% Preferred stock,
$100 par value, convertible,
10,000 shares authorized,
4,400 shares issued...................
Common stock, $5 par value,
125,000 shares authorized,
94,000 shares issued.................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred .....................................
In excess of par value
common......................................
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings ........................................
Total stockholders'
equity...................................
$0,440,000
00,470,000
910,000
$065,000
0920,000
00,985,000
1,895,000
00,560,000
$2,455,000
PROBLEM 14-5B
(a)
HOWITT CORPORATION
Stockholders' equity
Paid-in capital
Capital stock
8% Preferred stock, $50 par
noncumulative, 16,000
shares issued.............................
Common stock, no par, $5
stated value, 500,000 shares
issued and 490,000 outstanding ......................................
Total capital stock.................
Additional paid-in capital
In excess of par value
preferred stock........................... $0,692,000
In excess of stated value
common stock ........................... 1,500,000
From treasury stock ..................... 00,010,000
Total additional paid-in
capital..................................
Total paid-in capital ..............
Retained earnings ........................................
Total paid-in capital and
retained earnings ...............
Less: Treasury stock (10,000
shares).............................................
Total stockholders'
equity...................................
$0,800,000
02,500,000
3,300,000
02,202,000
5,502,000
02,448,000
7,950,000
00,130,000
$7,820,000
PROBLEM 14-5B (Continued)
(b) The book value of the common stock is $14 computed as follows:
Total stockholders' equity .........................................................
Less: Preferred stock equity
Call price (16,000 X $60) ..............................................
Common stock equity................................................................
$7,820,000
Common shares outstanding....................................................
490,000
Book value per share ($6,860,000 490,000) ...........................
$14
00,960,000
$6,860,000
(Note: No preferred dividends are assigned to the preferred stock equity
because the preferred stock is noncumulative.)