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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
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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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