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Detailed_solutions-1 - Chapter 9 Solutions 1 Answer(b 15...

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1 Chapter 9 Solutions 1. Answer: (b) 15% stock dividend is less than 25%, so we record it at market value. 15% of 2,000 shares is 300 new shares issued. Par value is \$4 x 300 = \$1200. PIC is the other \$6 (\$10 is the market value the stock was issued at) \$6 x 300 = \$1800. So you need to do the journal entry: RE 3,000 C.S 1200 PIC 1800 2. Answer: (E) A stock split causes no money to change hands, so nothing is transferred from RE. The par value per share and the market price would be divided in two and the number of shares outstanding would double. 3. Answer: (A) Shares outstanding: Begins at 20,000. 1) 20% x 20,000 = 4,000 new shares + 4000 2) Buy back 300 shares - 300 3) Paying Dividends has no effect on shares outstanding 4) Reissue 100 shares +100 5) Net Income has no effect on my shares outstanding Final shares outstanding: 20,000 + 4,000 – 300 + 100 = 23,800

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2 4. Answer: (B) RE starts at \$160,000 1) 20% x 20,000 = 4,000 new shares. RE 60,000 CS 60,000 Since par is \$15 and we purchase at \$15 there is no Capital in Excess of Par. We debit RE, so at \$15 each \$60,000 moves out of RE. 2) Treasury Stock has no effect on RE 3) Dividends are paid out of RE so RE goes down 30,000 4) Treas. Stock reissued for higher price puts more money into Capital in Excess of Par, not RE 5) Net income causes RE to go up \$20,000 RE ending: \$160,000 - \$60,000 – 30,000 + 20,000 = 90,000 5. Answer: (E) Stock splits don’t affect a single one of those accounts. See above for more explanation. 6. Answer: (C) Outstanding shares are the only shares we pay dividends to. I’ll explain why we don’t pay them to the others below. Authorized: This is just the total number of shares we CAN issue. Tons of them haven’t been issued, so who would we be paying dividends to? The folder those shares are sitting in? I think not. Treasury: We own these shares. Why would we pay dividends to ourselves? Issued: Now here is the tricky one. We don’t pay dividends to Treasury shares and Issued is made up of outstanding and treasury. So, while some issued shares are eligible, not all issued shares are not eligible for dividends.
3 7. Answer (A) This question asks a tricky thing. It wants to know how many years we haven’t paid dividends to our Preferred Cumulative shareholders. That is what dividends in arrears means. So lets do the calculations: 80,000 cash goes to my shareholders. How much do they get each year? .08 x \$100 = \$8 per share There are 5,000 shares so: \$8 x 5000 = \$40,000 a year This means we owe them \$40,000 for last year and pay them \$40,000 this year. Since we owe them for only one year, our dividends in arrears are one year. 8. Answer (E) Authorized = Issued + Unissued 100,000 = 60,000 + U U = 40,000 Issued = Treasury + Outstanding 60,000 = T + 45,000 T = 15,000

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4 Chapter 10 Solutions 1. Answer: (A) This is simply a definition. If they didn’t tell you that they are trading securities and you had to calculate the percentage to see if it was equity you’d do 25,000/175,000 = about 14% Remember out little chart: Percentage Method to use < 20% Market Value 20-50% Equity > 50% Consolidated Statement 2. Answer: (C) This question is a bitch. I did all kinds of dick stuff. First off I’ll lead you through all the steps: Our first journal entry is:
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