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# Chap008 - Accounting for and Presentation of Owners Equity...

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Accounting for and Presentation of Owners’ Equity SOLUTIONS: E8-1. OE A = L + PIC + RE Beginning ........... \$ (4) \$ (3) (1) (2) \$520,000 OE Changes .............. +260,000 +21,000 +40,000 + (7) Net income - 55,000 Dividends Ending ................ (5) = \$234,000 + \$175,000 + (6) Steps: Short-cut approach: 1. \$175,000 - \$40,000 = \$135,000 \$260,000 = + \$21,000 + \$40,000 2. \$520,000 - \$135,000 = \$385,000 + Net income - \$55,000 3. \$234,000 - \$21,000 = \$213,000 4. \$213,000 + \$520,000 = \$733,000 Net income = \$254,000 5. \$733,000 + \$260,000 = \$993,000 6. \$993,000 - \$234,000 - \$175,000 = \$584,000 7. \$385,000 + Net income - \$55,000 = \$584,000 Net income = \$254,000 E8-2. OE A = L + PIC + RE Beginning ........... \$ (5) \$219,000 (4) (6) Changes .............. +77,000 - 36,000 +10,000 + (7) Net income - 62,000 Dividends Ending ................ (3) = (2) + \$190,000 + (1) \$379,000 OE Steps: Short-cut approach: 1. \$379,000 - \$190,000 = \$189,000 \$77,000 = - \$36,000 + \$10,000 2. \$219,000 - \$36,000 = \$183,000 + Net income - \$62,000 3. \$183,000 + \$379,000 = \$562,000 4. \$190,000 - \$10,000 = \$180,000 Net income = \$165,000 5. \$562,000 - \$77,000 = \$485,000 6. \$485,000 - \$219,000 - \$180,000 = \$86,000 7. \$86,000 + Net income - \$62,000 = \$189,000 Net income = \$165,000 E8-3. Retained earnings, December 31, 2001 .......................................................... \$346,400 Add: Net income for the year .......................................................................... 56,900 Less: Dividends for the year ............................................................................ (32,500) Retained earnings, December 31, 2002 ........................................................... \$370,800 E8-4. Prepare the retained earnings portion of a statement of changes in owners’ equity for the year ended December 31, 2002:

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Chapter 8 Retained earnings, December 31, 2003 ........................................................... \$ ? Less: Net loss for the year .............................................................................. (11,500) Less: Dividends for the year ............................................................................ (16,800) Retained earnings, December 31, 2003 ........................................................... \$122,600 Solving for the unknown amount, retained earnings at December 31, 2002 was \$150,900. E8-5. a. Balance sheet amount equals number of shares issued * par value. 1,400,000 shares * \$5 = \$7,000,000 b. Cash dividends are paid on shares outstanding. 1,250,000 shares * \$0.15 = \$187,500 c. Treasury stock accounts for the difference between shares issued and shares outstanding. E8-6. a. Average price at which shares issued = Balance sheet amount / Number of shares issued = \$2,600,000 / 800,000 = \$3.25 per share b. Common stock at stated value of \$1.00 per share; 4,000,000 shares authorized, 800,000 issued and 720,000 shares outstanding ..................................................................... \$ 800,000 Additional paid-in capital ........................................................................... 1,800,000 Total paid-in capital ............................................................................................... \$2,600,000 c. Total dividend = Rate per share * Number of shares outstanding = \$0.18 * 720,000 = \$129,600 d. Treasury stock accounts for the difference between shares issued and shares outstanding. E8-7. a. Number of shares issued ............................................................................ 161,522 Less: Number of shares in treasury ............................................................. (43,373) Number of shares outstanding ..................................................................... 118,149 Dividend requirement per share .................................................................. * \$3.75 Total annual dividends required to be paid ................................................. \$443,058.75 E8-7. b. Dividend per share (6% * \$40 par value) .................................................... \$2.40 Number of shares outstanding ..................................................................... 73,621 Total annual dividends required to be paid ................................................. \$176,690.40
Accounting for and Presentation of Owners’ Equity c. Dividend per share (11.4% * \$100 stated value) ......................................... \$11.40 Number of shares outstanding ..................................................................... 37,600 Total annual dividends required to be paid ................................................. \$428,640 E8-8. a. Annual dividend = Dividend rate * par value * number of shares outstanding = 9% * \$60 * 10,000 = \$54,000 Semi-annual dividend = annual dividend / 2 = \$27,000 b. Annual dividend = Dividend rate * number of shares outstanding = \$2.40 * 53,200 = \$127,680 (Note: Arrears of \$127,680 is owed for last year.) c. Annual dividend = Dividend rate * par value * number of shares outstanding = 13.2% * \$100 * 52,000 = \$686,400 Quarterly dividend = annual dividend / 4 = \$171,600 E8-9. Preferred dividends for 2000, 2001, and 2002 would have to be paid before a dividend on the common stock could be paid. Annual dividend = \$6.50 * 22,000 shares = \$143,000 Dividends for 3 years = 3 * \$143,000 = \$429,000 E8-10. a. Annual dividend per share = Dividend rate * par value = 8.5% * \$70 = \$5.95 b. Preferred dividends for 2000 and 2001 must be paid first because the preferred stock is cumulative . The 2002 preferred dividend must also be paid before dividends can be paid on common stock.

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