Chapter_14_Solutions_7e

Chapter_14_Solutions_7e - Chapter 14 Corporations: Retained...

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Chapter 14 Corporations: Retained Earnings and the Income Statement Quick Check Answers: 1. c 3. b 5. a 7. d 9. b 2. c 4. c 6. d 8. a 10. b Explanations: 5. a. Debit Treasury Stock for $10,000. This decreases equity by $10,000. 6. d. Credit Treasury Stock for cost of $10,000 Credit Paid-in Capital from Treasury Stock Transactions for $5,000 ($15,000 cash received $10,000 cost). These credits increase equity by a total of $15,000. 7. d. $54,000. Use income from continuing operations ($54,000) to predict next year’s net income. Chapter 14 Corporations: Retained Earnings and the Income Statement 111
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Short Exercises (5-10 min.) S 14-1 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Sept. 30 Retained Earnings (10,000 × .10 × $15) 15,000 Common Stock (10,000 × .10 × $1) 1,000 Paid-in Capital in Excess of Par 14,000 Req. 2 No effect on total assets. No effect on total stockholders’ equity. Accounting 7/e Solutions Manual 112
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(5-10 min.) S 14-2 1. Both cash dividends and stock dividends decrease Retained Earnings. 2. Stock dividends have no effect on a liability. 3. Stock dividends increase paid-in capital by the same amount that they decrease Retained Earnings. 4. Cash dividends decrease both total assets and total stockholders’ equity, resulting in a decrease in the size of the company. Chapter 14 Corporations: Retained Earnings and the Income Statement 113
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(5–10 min.) S 14-3 Req. 1 Stockholders’ Equity (in millions except for par value per share) Paid-in capital: Common stock, $.50 ($1 / 2) par, 1,000 (500 × 2) shares authorized, 202 (101 × 2) shares issued. .…………. ................... $ 101 Paid-in capital in excess of par………………………. . 142 Total paid-in capital…………………………………. .. 243 Retained earnings. ........................................ ……………. 656 Other equity…………………………………………………. . (235 ) Total stockholders’ equity. ................................ ……. ...... $ 664 Req. 2 No account balances changed after the stock split. All account balances were unchanged. Accounting 7/e Solutions Manual 114
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S 14-4 Journal ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT a. Treasury Stock (1,000 × $5) 5,000 Cash 5,000 b. Cash (500 × $8) 4,000 Treasury Stock (500 × $5) 2,500 Paid-in Capital from Treasury Stock Transactions 1,500 Balance sheet at December 31, 2008 will report: Stockholders’ equity: Less: Treasury stock, 500 shares at cost ($5 per share)……………………………………. . $(2,500) (5 min.) S 14-5 1. Maximum amount of dividend: $370,000 ($400,000 $30,000) 2. A lender may restrict a corporation’s dividend payments and treasury stock purchases in order to ensure that the company maintains at least a minimum level of equity. After all, dividend payments and treasury stock purchases require cash outlays that leave fewer resources to pay liabilities. Chapter 14
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Chapter_14_Solutions_7e - Chapter 14 Corporations: Retained...

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