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StockholdersEquity
SOLUTIONSTO BRIEFEXERCISES
BRIEFEXERCISE15-1
Cash............................................................................... 4,500
CommonStock(300 X $10)................................................
Paid-in Capital in Excessof Par..........................................
3,000
1,500
BRIEFEXERCISE15-2
(a)
Cash........................................................................ 8,200
CommonStockNo-Par Value....................................
8,200
1,200
7,000
BRIEFEXERCISE15-3
WILCOCORPORATION
StockholdersEquity
December31, 2010
Commonstock,$5 par value......................................................
Paid-in capital in excessof par...................................................
Total paid-in capital..................................................................
Retainedearnings....................................................................
Less:Treasurystock................................................................
Total stockholdersequity..................................................
$ 510,000
1,320,000
1,830,000
2,340,000
4,170,000
(90,000)
$4,080,000
BRIEFEXERCISE15-4
Cash............................................................................. 13,500
PreferredStock(100 X $50)................................................
Paid-in Capital in Excessof ParPreferred..........................
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
5,000
3,100
15-1
CommonStock(300 X $10)................................................
Paid-in Capital in Excessof ParCommon..........................
FMVof common(300X $20).......................................................
FMVof preferred(100 X $90)......................................................
Total FMV........................................................................
Allocatedto common
$6,000
$15,000
X $13,500= $ 5,400
$9,000
$15,000
X $13,500=
Allocatedto preferred
3,000
2,400
$ 6,000
9,000
$15,000
8,100
$13,500
BRIEFEXERCISE15-5
Land............................................................................. 31,000
CommonStock(3,000X $5)...............................................
Paid-in Capital in Excessof Par..........................................
15,000
16,000
BRIEFEXERCISE15-6
Cash($60,000 $1,500).............................................................
CommonStock(2,000X $10)..............................................
Paid-in Capital in Excessof Par..........................................
58,500
20,000
38,500
BRIEFEXERCISE15-7
7/1/10
9/1/10
11/1/10
15-2
TreasuryStock(100X $87).......................................
Cash..............................................................
8,700
Cash(60 X $90).......................................................
TreasuryStock(60 X $87).................................
Paid-in Capital fromTreasuryStock...................
5,400
Cash(40 X $83).......................................................
Paid-in Capital fromTreasuryStock...........................
TreasuryStock(40 X $87).................................
3,320
160
8,700
5,220
180
3,480
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-3
BRIEFEXERCISE15-8
8/1/10
11/1/10
TreasuryStock(200X $80)...................................
Cash.........................................................
16,000
Cash(200 X $70).................................................
RetainedEarnings..............................................
TreasuryStock...........................................
14,000
2,000
16,000
16,000
BRIEFEXERCISE15-9
Cash......................................................................... 61,500
PreferredStock(500 X $100)..........................................
Paid-in Capital in Excessof ParPreferred.....................
50,000
11,500
BRIEFEXERCISE15-10
Aug. 1
RetainedEarnings(2,000,000X $1.00)..................
DividendsPayable....................................
Aug. 15
No entry.
Sep. 9
DividendsPayable.............................................
Cash.......................................................
2,000,000
2,000,000
2,000,000
2,000,000
BRIEFEXERCISE15-11
Sep. 21
Available-for-Sale Securities...............................
Gainon Appreciationof
Securities($1,200,000 $875,000)..............
325,000
RetainedEarnings.............................................
PropertyDividendsPayable.......................
1,200,000
Oct. 8
No entry.
Oct. 23
PropertyDividendsPayable................................
Available-for-Sale Securities......................
15-4
325,000
1,200,000
1,200,000
1,200,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
BRIEFEXERCISE15-12
Apr. 20
June1
RetainedEarnings($500,000 $125,000)................
Paid-in Capital in Excessof Par.............................
DividendsPayable......................................
375,000
125,000
DividendsPayable...............................................
Cash.........................................................
500,000
500,000
500,000
BRIEFEXERCISE15-13
DeclarationDate.
RetainedEarnings................................................................
CommonStockDividendDistributable...........................
Paid-in Capital in Excessof Par.....................................
(20,000X $65 = $1,300,000;
(20,000X $10 = $200,000)
DistributionDate.
CommonStockDividendDistributable....................................
CommonStock...........................................................
1,300,000
200,000
1,100,000
200,000
200,000
BRIEFEXERCISE15-14
DeclarationDate.
RetainedEarnings................................................................
CommonStockDividendDistributable
(400,000X $10).........................................................
DistributionDate.
CommonStockDividendDistributable....................................
CommonStock...........................................................
4,000,000
4,000,000
4,000,000
4,000,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-5
*BRIEFEXERCISE15-15
(a)
Preferred stockholders would receive $60,000 (6% X $1,000,000) and the remainder of
$240,000($300,000 $60,000)wouldbe distributedto commonstockholders.
(b)
15-6
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
SOLUTIONSTO EXERCISES
EXERCISE15-1 (1520minutes)
(a)
Jan.
Mar.
July
Sept.
(b) Jan.
Mar.
10
10
Cash(80,000X $6).......................................
CommonStock(80,000X $3)..................
Paid-in Capital in Excessof Par..............
480,000
OrganizationExpense..................................
CommonStock(5,000X $3)....................
Paid-in Capital in Excessof Par..............
35,000
Cash(30,000X $8).......................................
CommonStock(30,000X $3)..................
Paid-in Capital in Excessof Par
(30,000X $5)......................................
240,000
Cash(60,000X $10).....................................
CommonStock(60,000X $3)..................
Paid-in Capital in Excessof Par
(60,000X $7)......................................
600,000
Cash(80,000X $6).......................................
CommonStock(80,000X $2)..................
Paid-in Capital in Excessof
StatedValue(80,000X $4)...................
480,000
OrganizationExpense..................................
CommonStock(5,000X $2)....................
Paid-in Capital in Excessof
StatedValue......................................
35,000
240,000
240,000
15,000
20,000
90,000
150,000
180,000
420,000
160,000
320,000
10,000
25,000
July
Sept.
Cash(30,000X $8).......................................
CommonStock(30,000X $2)..................
Paid-in Capital in Excessof
StatedValue(30,000X $6)...................
240,000
Cash(60,000X $10).....................................
CommonStock(60,000X $2)..................
Paid-in Capital in Excessof
600,000
60,000
180,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
120,000
15-7
StatedValue(60,000X $8)...................
480,000
EXERCISE15-2 (1520minutes)
Jan. 10
Mar.
April
May
Aug.
Cash(80,000X $5)...............................................
CommonStock(80,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
(80,000X $3)..............................................
400,000
Cash(5,000X $108).............................................
PreferredStock(5,000X $50)..........................
Paid-in Capital in Excessof Par
ValuePreferredStock
(5,000X $58)..............................................
540,000
Land..................................................................
CommonStock(24,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
($80,000 $48,000).....................................
80,000
Cash(80,000X $7)...............................................
CommonStock(80,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
(80,000X $5)..............................................
560,000
OrganizationExpense..........................................
CommonStock(10,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
($50,000 $20,000).....................................
50,000
160,000
240,000
250,000
290,000
48,000
32,000
160,000
400,000
20,000
30,000
EXERCISE15-2 (Continued)
Sept.
15-8
Cash(10,000X $9)...............................................
CommonStock(10,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
(10,000X $7)..............................................
90,000
20,000
70,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Nov.
Cash(1,000X $112).............................................
PreferredStock(1,000X $50)..........................
Paid-in Capital in Excessof Par
ValuePreferredStock
(1,000X $62)..............................................
112,000
50,000
62,000
EXERCISE15-3 (1015minutes)
(a)
Land($60X 25,000)........................................................
TreasuryStock($48X 25,000)..................................
Paid-in Capital fromTreasuryStock..........................
1,500,000
1,200,000
300,000
(b) One might use the cost of treasurystock. However, this is not a relevant measureof this
economicevent. Rather,it is a measureof a prior, unrelatedevent. The appraisedvalueof
the land is a reasonable alternative (if based on appropriate fair value estimation
techniques). However, it is an appraisal as opposed to a market-determined price. The
tradingpriceof the stockis probablythe best measureof fair valuein this transaction.
EXERCISE15-4 (2025minutes)
(a)
(1) UnamortizedBondIssueCosts
($340,000X $500/$850).........................................
Cash($850X 9,600).................................................
BondsPayable................................................
CommonStock(100,000X $5)...........................
Paid-in Capital in Excessof Par.........................
200,000
8,160,000
5,000,000
500,000
2,860,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-9
EXERCISE15-4 (Continued)
Incrementalmethod
Lump-sumreceipt(9,600X $850)........................................
Allocatedto subordinateddebenture
(9,600X $500)................................................................
Balanceallocatedto commonstock....................................
$8,160,000
4,800,000
$3,360,000
$3,360,000
500,000
$2,860,000
Lump-sumreceipt(10,000X $850)......................................
Allocatedto debenture(10,000X $500)................................
Balanceallocatedto commonstock....................................
$8,500,000
5,000,000
$3,500,000
Bondissuecost allocation
Total issuecost (400 X $850)..............................................
Less:Amountallocatedto bonds.......................................
Amountallocatedto common............................................
$340,000
200,000
$140,000
Investment banking costs 400 @ $850 = $340,000 allocate 5/8.5 to debentures and
3.5/8.5 to commonstock. Bondportionis bondissuecosts; commonstockportionis
a reduction of paid-in capital, which means that total paid-in capital is $3,360,000
($3,500,000 $140,000).
(2) Cash........................................................ 8,160,000
UnamortizedBondIssueCosts.................................
BondDiscount($5,000,000 $4,722,222)....................
BondsPayable................................................
CommonStock(100,000X $5)...........................
Paid-in Capital in Excessof Par.........................
Theallocationbasedon fair valuefor oneunit is
Subordinateddebenture...................................
Commonstock(10 sharesX $40).......................
Total fair value................................................
188,889
277,778
5,000,000
500,000
3,126,667
$500
400
$900
15-10
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
$8,500,000X (5/9)
= $4,722,222 To Debentures
$8,500,000X (4/9)
= $3,777,778 To Common
$340,000X (5/9)
= $188,889
$340,000X (4/9)
= $151,111
Paid-in capital in excessof par
= $3,777,778 $500,000 $151,111
= $3,126,667
(b) One is not better than the other, but would depend on the relative reliability of the
valuations for the stocks and bonds. This question is presented to stimulate some
thoughtand classdiscussion.
EXERCISE15-5 (1015minutes)
(a)
$ 84,000
21,000
$105,000
$ 80,000
20,000
$100,000
Cash............................................................................
CommonStock(500 X $10).......................................
Paid-in Capital in Excessof Par
Common($80,000 $5,000)...................................
PreferredStock(100 X $100).....................................
Paid-in Capital in Excessof Par
Preferred($20,000 $10,000)................................
100,000
5,000
75,000
10,000
10,000
(b) Lump-sumreceipt
Allocatedto common(500X $170)
Balanceallocatedto preferred
Cash............................................................................
CommonStock........................................................
Paid-in Capital in Excessof Par
Common($85,000 $5,000)...................................
PreferredStock.......................................................
Paid-in Capital in Excessof Par
Preferred($15,000 $10,000).................................
$100,000
85,000
$ 15,000
100,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
5,000
80,000
10,000
5,000
15-11
218,000
50,000
168,000
46,000
10,000
36,000
Note: The fair value of the stock ($46,000) is used to value the exchange because it is a
moreobjectivemeasurethanthe appraisedvalueof the land($50,000).
(c)
TreasuryStock(500X $44).................................................
Cash........................................................................
22,000
22,000
EXERCISE15-7 (1520minutes)
# Assets
1.
D
2.
I
3.
I
Liabilities
NE
NE
NE
Stockholders
Equity
D
I
I
Paid-in
Capital
NE
NE
I
Retained
Earnings
NE
D
NE
Net
Income
NE
NE
NE
EXERCISE15-8 (1520minutes)
(a)
300,000
Paid-in capital
Preferredstock,$100par 6%, 10,000sharesissued.....................
Paid-in capital in excessof par (10,000X $7)...............................
15-12
210,000
90,000
$1,000,000
70,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Assets
Liabilities
Stockholders
Equity
Paid-in
Capital
Retained
Earnings
Net
Income
1.
2.
3.
4.
5.
6.
7.
8.
9.
I
NE
NE
NE
D
D
NE
NE
NE
NE
NE
I
NE
NE
D
I
NE
NE
I
NE
D
NE
D
NE
D
NE
NE
NE
NE
NE
NE
NE
NE
NE
I
NE
I
NE
D
NE
D
NE
D
D
NE
I
NE
NE
NE
D
NE
D
NE
NE
EXERCISE15-12 (1015minutes)
(a)
(b)
6/1
RetainedEarnings..................................
DividendsPayable.........................
6/14
6/30
DividendsPayable..................................
Cash............................................
6,000,000
6,000,000
6,000,000
6,000,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-13
EXERCISE15-13 (1015minutes)
(a)
(b)
RetainedEarnings($10 X 5,000,000)........................
CommonStockDividendDistributable...............
50,000,000
CommonStockDividendDistributable....................
CommonStock................................................
50,000,000
(c)
50,000,000
50,000,000
Stock dividends and splits serve the same function with regard to the securities
markets. Both techniquesallow the board of directors to increasethe quantity of shares
andreducesharepricesinto a desiredtradingrange.
For accounting purposes the 20%25%rule reasonably views large stock dividends as
substantive stock splits. In this case, it is necessary to capitalize par value with a stock
dividend because the number of shares is increased and the par value remains the
same.Earningsare capitalizedfor purelyproceduralreasons.
EXERCISE15-14 (1012minutes)
(a)
(b)
(c)
15-14
RetainedEarnings(10,000X $37)...........................
CommonStockDividendDistributable...............
Paid-in Capital in Excessof Par.........................
370,000
CommonStockDividendDistributable...................
CommonStock................................................
100,000
RetainedEarnings(200,000X $10).........................
CommonStockDividendDistributable...............
2,000,000
CommonStockDividendDistributable...................
CommonStock................................................
2,000,000
100,000
270,000
100,000
2,000,000
2,000,000
No entry, the par value becomes$5 and the number of shares outstandingincreasesto
400,000.
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
EXERCISE15-15 (1015minutes)
(a)
RetainedEarnings..................................................
CommonStockDividendDistributable.............
Paid-in Capital in Excessof Par.......................
(60,000sharesX 5% X $39 = $117,000)
117,000
CommonStockDividendDistributable......................
CommonStock.............................................
30,000
30,000
87,000
30,000
(b)
No entry, memorandum note to indicate that par value is reduced to $2 and shares
outstandingare now300,000(60,000X 5).
(c)
January5, 2011
Investments(Bonds)...............................................
Gainon Appreciationof Investments
(Bonds).....................................................
RetainedEarnings..................................................
PropertyDividendsPayable............................
January25, 2011
PropertyDividendsPayable....................................
Investments(Bonds).....................................
35,000
35,000
125,000
125,000
125,000
125,000
EXERCISE15-16 (510minutes)
Total incomesinceincorporation.......................................
Less: Total cashdividendspaid........................................
Total valueof stockdividends................................
Currentbalanceof retainedearnings..................................
$287,000
$60,000
40,000
100,000
$187,000
The unamortized discount on bonds payable is shown as a contra liability; the gains on
treasurystocktransactionsare recordedas additionalpaid-in capital.
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-15
EXERCISE15-17 (2025minutes)
Teller Corporation
StockholdersEquity
December31, 2010
Capital stock
Preferredstock,$4 cumulative,par value$50
per share;authorized60,000shares,issued
andoutstanding10,000shares..................................
Commonstock,par value$1 per share;
authorized600,000shares,issued200,000
shares,andoutstanding190,000shares.....................
Total capital stock.............................................
Additionalpaid-in capital
In excessof par value.................................................
Fromsale of treasurystock.........................................
Total paid-in capital...........................................
Retainedearnings.................................................................
Total paid-in capital and retainedearnings...............................
Less:Treasurystock,10,000sharesat cost.............................
Total stockholdersequity...........................................
$ 500,000
200,000
700,000
1,000,000
160,000
1,860,000
201,000
2,061,000
170,000
$1,891,000
EXERCISE15-18 (3035minutes)
(a)
1.
2.
3.
15-16
DividendsPayablePreferred(2,000X $8)...................
DividendsPayableCommon(20,000X $2)..................
Cash............................................................
16,000
40,000
TreasuryStock......................................................
Cash(2,700X $40).........................................
108,000
Land.....................................................................
............................................................................
TreasuryStock(700X $40).............................
Paid-in Capital FromTreasuryStock...............
30,000
56,000
108,000
28,000
2,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
4.
5.
Cash(500 X $105)..................................................
PreferredStock(500 X $100)...........................
Paid-in Capital in Excessof Par
Preferred...................................................
52,500
RetainedEarnings(1,800*X $45)..............................
CommonStockDividendDistributable
(1,800X $5)................................................
Paid-in Capital in Excessof Par
Common...................................................
81,000
50,000
2,500
9,000
72,000
7.
CommonStockDividendDistributable.....................
CommonStock.............................................
9,000
RetainedEarnings..................................................
DividendsPayablePreferred
(2,500X $8)................................................
DividendsPayableCommon
(19,800*X $2).............................................
59,600
9,000
20,000
39,600
*(18,000+ 1,800)
(b)
ELIZABETHCOMPANY
StockholdersEquity
December31, 2011
Capital stock
Preferredstock,8%, $100par, 10,000shares
authorized,2,500sharesissuedand
outstanding.............................................................
Commonstock,$5 par, 100,000shares
authorized,21,800sharesissued,19,800
sharesoutstanding...................................................
Total capital stock................................................
Additionalpaid-in capital.............................................
Total paid-in capital..............................................
Retainedearnings..................................................................
$250,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
109,000
359,000
201,500
560,500
639,400
15-17
1,199,900
80,000
$1,119,900
Computations:
Preferredstock
$200,000+ $50,000= $250,000
Commonstock
$100,000+ $ 9,000= $109,000
Additionalpaid-in capital: $125,000+ $2,000+ $2,500+ $72,000= $201,500
Retainedearnings:$450,000 $81,000 $59,600+ $330,000= $639,400
Treasurystock$108,000 $28,000= $80,000
(b)
$213,718
$1,450,000
= 14.7%
$135,000
$1,500,000
= 9%
Potter Plastics, Inc. is trading on the equity successfully, since its return on common
stockequityis greaterthaninterestpaid on bonds.
15-18
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
SOLUTIONSTO PROBLEMS
PROBLEM15-12
PENNCOMPANY
StockholdersEquity
June30, 2011
Capitalstock
8% preferredstock,$25 par value,
cumulativeand nonparticipating,
100,000sharesauthorized,40,000
sharesissuedand outstandingNoteA............................
$1,000,000
1,154,000
2,154,000
Additionalpaid-in capital
On preferredstock............................................................
On commonstock.............................................................
On treasurystock..............................................................
Total paid-in capital..................................................
$ 760,000
2,821,800*
1,500
Retainedearnings
Total paid-in capital and retainedearnings..................
Less: Treasurystock,1,500sharesat cost.................
Total stockholdersequity.....................................
3,583,300
5,737,300
409,200
6,146,500
58,500
$6,088,000
$1,785,000
170,000
640,000
226,800
$2,821,800
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
15-19
AccountBalances
CommonStock
850,000
50,000
200,000
54,000
1,154,000
Paid-in Capital in
Excessof ParC.S.
1,785,000
170,000
640,000
226,800
2,821,800
PreferredStock
1,000,000
Paid-in Capital in
Excessof ParPfd
760,000
TreasuryStock
78,000
19,500
Paid-in CapitalT.S.
1,500
58,500
RetainedEarnings
690,000
280,800
40,000
40,000
409,200
15-20
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
Entriessupportingthe balances.
CommonStock
1.
2.
3.
Entries
Cash....................................................... 2,635,000
CommonStock..............................................
Paid-in Capital in Excessof Par.......................
850,000
1,785,000
Land.........................................................220,000
CommonStock..............................................
Paid-in Capital in Excessof Par.......................
50,000
170,000
Cash.........................................................840,000
CommonStock..............................................
Paid-in Capital in Excessof Par.......................
200,000
640,000
At the beginning of the year, Penn had 110,000 common shares outstanding, of which
85,000 shareswere issuedat $31 per share, resulting in $850,000 (85,000 shares at $10) of
common stock and $1,785,000 of additional paid-in capital on common stock (85,000
shares at $21). The 5,000 shares exchanged for a plot of land would be recorded at
$50,000of commonstockand$170,000of paid-in capital(usethe currentmarket value of the
land on July 24 to value the stock issuance). The 20,000 shares issued in 2009 at $42 a
shareresultedin $200,000of commonstockand $640,000of paid-in capital.
PreferredStock
Cash....................................................... 1,760,000
PreferredStock..............................................
Paid-in Capital in Excessof ParPfd................
1,000,000
760,000
TreasuryStock
Nov. 30
TreasuryStock...............................................
Cash.......................................................
78,000
June30 Cash.............................................................
Paid-in CapitalTreasuryStock.................
TreasuryStock.........................................
21,000
78,000
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
1,500
19,500
15-21
RetainedEarnings..........................................
CommonStock.........................................
Paid-in Capital in Excessof ParC.S..........
*Sharesoutstanding,beginningof year:
TreasuryStock
280,800**
54,000*
226,800
110,000
(2,000)
108,000X 5%=
5,400
X $10 Par
$54,000
**5,400SharesX $52
The 5% stock dividend resulted in an increase of 5,400 shares. Recall that there were
110,000 shares outstanding at the beginning of the year. The purchase of 2,000 treasury
shares occurred before the stock dividend, bringing the number of shares outstandingat
the time of the dividend (December 2010) to 108,000 shares. The resale of 500 treasury
sharesoccurredafter the stockdividend.
The issuanceof 40,000 shares of preferred at $44 resulted in $1,000,000(40,000 shares at
$25)of preferredstockoutstandingand$760,000(40,000sharesat $19) of paid-in capitalon
preferred.
RetainedEarnings
The cash dividendsonly affect the retained earnings. Note that the preferred stock is in
arrears for the dividends that should have been declared in June 2011. Ending retained
earnings is the beginning balance of $690,000 plus net income of $40,000, less the
preferred dividend of $40,000 and the commonstock dividend of $280,800 (5,400 shares
at $52), resultingin an endingbalanceof $409,200.
15-22
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)