Chapter 11 - Chapter 11 Reporting and Analyzing...

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©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 11 11-1 Chapter 11 Reporting and Analyzing Stockholders’ Equity Learning Objectives – coverage by question Mini-exercises Exercises Problems Cases LO1 – Describe business financing through stock issuances. 37, 38 41 62, 63 LO2 – Explain and account for the issuance and repurchase of stock. 19, 20, 21, 22, 25, 36, 37, 38 39, 40, 41, 45, 52, 54 55, 56, 57, 58, 59 62, 63, 64 LO3 – Describe how operations increase the equity of a business. 30 41 62, 63, 64 LO4 – Explain and account for dividends and stock splits. 23, 26, 27, 28, 29, 30, 31, 36, 38 42, 44, 46, 47, 48, 49, 50, 51, 54 58 LO5 – Define and illustrate comprehensive income. 59, 60 LO6 – Describe and illustrate basic and diluted earnings per share computations. 23, 24, 25, 32, 33, 34, 36, 37 41, 43, 44, 50, 54 55, 56, 57 LO7 – Appendix 11A: Analyze the accounting for convertible securities, stock rights, and stock options. 35 53 59, 60 61
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©Cambridge Business Publishers, 2011 Financial Accounting, 3 rd Edition 11-2 QUESTIONS Q11-1. Par value stock is stock that has a face value printed (identified) on the stock certificate. From an accounting standpoint, the par value of the common stock is the amount added to the common stock portion of paid-in-capital upon the sale of stock. The remainder of the sale price is added to the additional paid-in- capital portion of paid-in-capital. There are no analysis implications of the par value of stock. Q11-2. Preferred stock usually takes priority over common stock in the receipt of a specified amount of dividends and in the distribution of assets if the corporation is ever liquidated. Also, preferred stock does not usually have voting rights. Typically, preferred stock has the following features: 1) Preferential claim to dividends and to assets in liquidation, 2) Cumulative dividend rights, and 3) No voting rights. Q11-3. Preferred stock is similar to debt when 1. Dividends are cumulative. 2. Dividends are nonparticipating. 3. It has a preference to assets in liquidation. Preferred stock is similar to common stock when 1. Dividends are not cumulative. 2. Dividends are fully participating. 3. It is convertible into common stock. 4. It does not have a preference to assets in liquidation. Q11-4. Dividend arrearage on preferred stock is the aggregate amount of dividends on cumulative preferred stock that has not been declared to date. The amount of dividends in arrears and a current dividend must be paid to preferred stockholders before common stockholders can receive any dividends. In the example, preferred stockholders must receive $90,000 in dividends ($500,000 0.06 3 years = $90,000) before common stockholders receive any dividends. Q11-5. A corporation's authorized stock is the maximum number of shares of
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Chapter 11 - Chapter 11 Reporting and Analyzing...

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