CHAPTER 15

Stockholders Equity
OPTIONAL ASSIGNMENT CHARACTERISTICS TABLE
Item

Description

BE15-4
BE15-6
BE15-7
BE15-13
BE15-14

Lump-sum sales of stock with preferred stock.

Issuance of stock with payment of stock issue costs.
Treasury stock transactions.
Small stock dividend.
Large stock dividend.

E15-2
E15-5
E15-10
E15-11
E15-12
E15-13
E15-15
E15-17
E15-18
E15-21

Recording the issuance of common and preferred stock.

Lump-sum sales of stock with preferred stock.
Analysis of equity data and equity section preparation.
Analysis of equity transactions on the balance sheet.
Cash dividend and liquidating dividend.
Stock split and stock dividend (a. & b. only).
Dividend entries.
Stockholders equity section.
Dividends and stockholders equity section.
Preferred dividends (a. & b. only)

P15-1
P15-2
P15-6
P15-8
P15-11

Equity transactions and statement preparation (Req. a. only)

Treasury stock transactions and presentation (Req. a. only)
Treasury stockcost method (Req. a. only)
Dividends and splits.
Stock and cash dividends (a. & b. only).

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BRIEF EXERCISE 15-4

Cash .........................................................................................................................
Preferred Stock (100 X $50) ............................................................................
Paid-in Capital in Excess of ParPreferred ($8,100 $5,000) .....................
Common Stock (300 X $10) ............................................................................
Paid-in Capital in Excess of ParCommon ($5,400 $3,000) ......................

13,500
5,000
3,100
3,000
2,400

[(FV of common (300 X $20) = $6,000) + (FV of preferred (100 X $90) = $9,000) = total FV $15,000]
Allocated to: preferred $13,500 x ($9,000/$15,000) = $8,100; common: $13,500 x ($6,000/$15,000) = $5,400

BRIEF EXERCISE 15-6

Cash ($60,000 $1,500)............................................................................................
Common Stock (2,000 X $10) .........................................................................
Paid-in Capital in Excess of ParCommon ($60,000 $20,000 $1,500) ....

58,500
20,000
38,500

BRIEF EXERCISE 15-7

7/1/12

9/1/12

11/1/12

Treasury Stock (100 X $87) ...............................................................

Cash ........................................................................................

8,700

Cash (60 X $90) .................................................................................

Treasury Stock (60 X $87) .......................................................
Paid-in Capital--Treasury Stock...............................................

5,400

Cash (40 X $83) .................................................................................

Paid-in Capital--Treasury Stock .........................................................
Treasury Stock (40 X $87) .......................................................

3,320
160

8,700

5,220
180

3,480

BRIEF EXERCISE 15-13

Declaration Date.
Retained Earnings [(400,000 x 5%) = 20,000 x $65] ...............................................
Common Stock Dividend Distributable (20,000 x $10) ..............................
Paid-in Capital in Excess of ParCommon................................................
Distribution Date.
Common Stock Dividend Distributable .....................................................................
Common Stock ............................................................................................

1,300,000
200,000
1,100,000

200,000
200,000

BRIEF EXERCISE 15-14

Declaration Date.
Retained Earnings ....................................................................................................
Common Stock Dividend Distributable (400,000 X $10) .............................

4,000,000

Distribution Date.
Common Stock Dividend Distributable .....................................................................
Common Stock ............................................................................................

4,000,000

4,000,000

4,000,000

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EXERCISE 15-2
Jan.

Mar.

April

May

Aug.

Sept.

Nov.

10

Cash (80,000 X $5) .......................................................................

Common Stock (80,000 X $2) ..............................................
Paid-in Capital in Excess of Stated ValueCommon ........

400,000

Cash (5,000 X $108) .....................................................................

Preferred Stock (5,000 X $50) .............................................
Paid-in Capital in Excess of Par ValuePreferred ..............

540,000

Land ..............................................................................................
Common Stock (24,000 X $2) ..............................................
Paid-in Capital in Excess of Stated ValueCommon .........

80,000

Cash (80,000 X $7) .......................................................................

Common Stock (80,000 X $2) ..............................................
Paid-in Capital in Excess of Stated ValueCommon .........

560,000

Organization Expense ...................................................................

Common Stock (10,000 X $2) ..............................................
Paid-in Capital in Excess of Stated ValueCommon .........

50,000

Cash (10,000 X $9) .......................................................................

Common Stock (10,000 X $2) ..............................................
Paid-in Capital in Excess of Stated ValueCommon .........

90,000

Cash (1,000 X $112) .....................................................................

Preferred Stock (1,000 X $50) .............................................
Paid-in Capital in Excess of Par ValuePreferred ..............

112,000

160,000
240,000

250,000
290,000

48,000
32,000

160,000
400,000

20,000
30,000

20,000
70,000

50,000
62,000

EXERCISE 15-5
(a)

Fair value of Common (500 X $168) ..............................................................................

Fair value of Preferred (100 X $210) ..............................................................................

$ 84,000
21,000
$105,000

Allocated to Common: $84,000/$105,000 X $100,000 = $ 80,000

Allocated to Preferred: $21,000/$105,000 X $100,000 = $ 20,000
Cash ............................................................................................................
Common Stock (500 X $10) ...............................................................
Paid-in Capital in Excess of ParCommon ($80,000 $5,000) .......
Preferred Stock (100 X $100) .............................................................
Paid-in Capital in Excess of ParPreferred ($20,000 $10,000) .....
(b)

100,000
5,000
75,000
10,000
10,000

Lump-sum receipt
Allocated to common (500 X $170)
Balance allocated to preferred
Cash ............................................................................................................
Common Stock ...................................................................................
Paid-in Capital in Excess of ParCommon ($85,000 $5,000) .......
Preferred Stock ...................................................................................
Paid-in Capital in Excess of ParPreferred ($15,000 $10,000) .....

$100,000
85,000
$ 15,000
100,000
5,000
80,000
10,000
5,000

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EXERCISE 15-10
(a)

(1)

The par value is $2.50 ($545 / 218) or ($540 / 216).

(2)

The cost per share of treasury stock at December 31, 2013 was $42 per share ($1,428 / 34)
compared to the cost at December 31, 2012 of $34 per share ($918 / 27).

Stockholders equity (in millions of dollars and shares)

Paid-in capital:
Common stock, $2.50 par value, 500 shares authorized,
218 shares issued, and 184 shares outstanding
Additional paid-in capital .....................................................................................
Total paid-in capital ..................................................................................
Retained earnings..........................................................................................................
Treasury stock (at cost; 34 shares) ...............................................................................
Total stockholders equity ........................................................................

(b)

$ 545
891
1,436
7,167
(1,428)
$ 7,175

EXERCISE 15-11

Item
1.
2.
3.
4.
5.
6.
7.
8.
9.

Assets
I
NE
NE
NE
D
D
NE
NE
NE

Liabilities
NE
NE
I
NE
NE
D
I
NE
NE

Stockholders
Equity
I
NE
D
NE
D
NE
D
NE
NE

Paid-in
Capital
NE
NE
NE
NE
NE
NE
NE
I
NE

Retained
Earnings
I
NE
D
NE
D
NE
D
D
NE

Net Income
I
NE
NE
NE
D
NE
D
NE
NE

EXERCISE 15-12
(a)

(b)

6/1

Retained Earnings (10,000,000 x $.60) ..................................................................

6,000,000
Cash Dividends Payable .............................................................................

6/14

No entry on date of record.

6/30

Cash Dividends Payable .........................................................................................

6,000,000
Cash ............................................................................................................

6,000,000

6,000,000

If this were a liquidating dividend, the debit entry on the date of declaration would be to Additional Paid-in
Capital rather than Retained Earnings.

EXERCISE 15-13 (a & b only)

(a)

Memo entry: The Board of Directors declared a 2-for-1 common stock split, resulting in 10 million
common shares issued and outstanding (5 million x 2) with a par value of $5 per share ($10 / 2).

(b)

Retained Earnings [(5,000,000 x 100%) x $10 par] .................................................

50,000,000
Common Stock Dividend Distributable .............................................................

50,000,000

Common Stock Dividend Distributable ....................................................................

50,000,000
Common Stock .................................................................................................

50,000,000

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EXERCISE 15-15
(a)

Declaration Date.
Retained Earnings (60,000* shares X 5% = 3,000 X $39) ......................................
117,000
Common Stock Dividend Distributable (3,000 x $10) ................................
Paid-in Capital in Excess of ParCommon ...............................................
* ($600,000 / $10 = 60,000 shares outstanding)
Distribution Date.
Common Stock Dividend Distributable ....................................................................
30,000
Common Stock ...........................................................................................

30,000
87,000

30,000

(b)

Memo entry: 5-for-1 common stock split, resulting in 300,000 shares outstanding (60,000 X 5) with a par
value of $2 per share ($10 / 5).

(c)

January 5, 2013
Debt Investments ($125,000 $90,000) .................................................................
35,000
Unrealized Holding Gain - Income ..............................................................

35,000

Retained Earnings ...................................................................................................

125,000
Property Dividends Payable........................................................................

125,000

January 25, 2013

Property Dividends Payable ....................................................................................
125,000
Debt Investments ........................................................................................

125,000

EXERCISE 15-17
Teller Corporation
Balance Sheet (partial)
December 31, 2012
STOCKHOLDERS EQUITY
Paid-in Capital:
Capital stock:
Preferred stock, $4 cumulative, $50 par value; 60,000 shares
authorized; 10,000 shares issued and outstanding ..............................
Common stock, $1 par value; 600,000 shares authorized;
200,000 shares issued, and 190,000 shares outstanding ....................
Additional paid-in capital:
Paid-in capital in excess of par value--common.......................................
Paid-in capital, treasury stock ..................................................................
Total paid-in capital .....................................................................
Retained earnings ...................................................................................................
Treasury stock (at cost; 10,000 common shares) ..................................................
Total stockholders equity .........................................................................

$ 500,000
200,000
1,000,000
160,000
1,860,000
201,000
(170,000)
$1,891,000

EXERCISE 15-18
(a)

1.

2.

3.

Cash Dividends Payable [(2,000 X $8) + (20,000 x $2)] ..............................................

56,000
Cash ............................................................................................................

56,000

Treasury Stock (2,700 X $40) ................................................................................

108,000
Cash ............................................................................................................

108,000

Land.........................................................................................................................
30,000
Treasury Stock (700 X $40) ........................................................................
Paid-in Capital--Treasury Stock ..................................................................

28,000
2,000

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EXERCISE 15-18 continued

4.

5.

6.

7.

(b)

Cash (500 X $105) ..................................................................................................

52,500
Preferred Stock (500 X $100) .....................................................................
Paid-in Capital in Excess of ParPreferred ...............................................
Retained Earnings (1,800* X $45) ..........................................................................
81,000
Common Stock Dividend Distributable (1,800 X $5) .................................
Paid-in Capital in Excess of ParCommon ...............................................
*[20,000 shares issued 2,000 shares T/S (2,700 700) =
18,000 shares outstanding X 10%]
Common Stock Dividend Distributable....................................................................
9,000
Common Stock ...........................................................................................
Retained Earnings (P/S $20,000 + C/S $39,600) ...................................................
59,600
Cash Dividends Payable .............................................................................
[(P/S = 2,500 x $8); (C/S = [(18,000 + 1,800) x $2)]

50,000
2,500

9,000
72,000

9,000

59,600

ELIZABETH COMPANY
Balance Sheet (partial)
December 31, 2012
STOCKHOLDERS EQUITY

Paid-in Capital:
Capital stock:
Preferred stock, 8%, $100 par, 10,000 shares authorized,
2,500 shares issued and outstanding ......................................................
Common stock, $5 par, 100,000 shares authorized,
21,800 shares issued, 19,800 shares outstanding ..................................
Additional paid-in capital:
Paid-in capital in excess of par ..................................................................
Paid-in capital, treasury stock ....................................................................
Total paid-in capital ............................................................................................
Retained earnings ......................................................................................................
Less: Treasury stock (at cost; 2,000 common shares) .....................................................
Total stockholders equity .............................................................................................

$250,000
109,000
199,500
2,000
560,500
639,400
(80,000)
$1,119,900

Computations:
Preferred stock: $200,000 + $50,000 = $250,000
Common stock: $100,000 + $ 9,000 = $109,000
Paid-in capital in excess of par (cant split between P/S & C/S): $125,000 + $2,500 + $72,000 = $199,500
Paid-in capital, treasury stock: $2,000
Retained earnings: $450,000 $81,000 $59,600 + $330,000 = $639,400
Treasury stock: $108,000 $28,000 = $80,000

EXERCISE 15-21 (a. and b. only)

(a)

Preferred stock is noncumulative, nonparticipating:

Preferred = [($100 X 6% = $6 x 2,000] = $12,000
Common = ($70,000 $12,000) = $58,000

(b)

Preferred stock is cumulative, nonparticipating:

Preferred = ($12,000 x 3 years) = $36,000
Common = ($70,000 $36,000) = $34,000

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PROBLEM 15-1 (Req. a. only)

Jan. 11

Feb. 1

Jul. 29

Cash (20,000 X $16) ................................................................................

Common Stock (20,000 X $10) .........................................................
Paid-in Capital in Excess of ParCommon .......................................

320,000

Equipment .................................................................................................
Buildings ....................................................................................................
Land ...........................................................................................................
Preferred Stock (4,000 X $100) ..........................................................
Paid-in Capital in Excess of ParPreferred ......................................

50,000
160,000
270,000

Treasury Stock (1,800 X $17) ...................................................................

Cash ...................................................................................................

30,600

Aug. 10 Cash (1,800 X $14) ...................................................................................

Retained Earnings ...................................................................................
Treasury Stock (1,800 X $17) .............................................................

200,000
120,000

400,000
80,000

30,600
25,200
5,400*
30,600

*(The debit is made to Retained Earnings because no Paid-in Capital from Treasury Stock exists.)
Dec. 31

Retained Earnings ($5,000 + $32,000) ....................................................

Cash Dividends Payable ....................................................................

37,000*
37,000

* Common dividend = (20,000 X $.25) = $5,000; Preferred dividend = (4,000 X $100 X 8%) = $32,000
Dec. 31

Income Summary ....................................................................................

Retained Earnings ..............................................................................

175,700
175,700

PROBLEM 15-2 (Req. a. only)

(a)

Feb.

Mar.

Mar. 18

Apr. 22

Treasury Stock (2,000 x $19) ..............................................

Cash .......................................................................

38,000

Cash (800 x $17) .................................................................

Retained Earnings (800 x $2) .............................................
Treasury Stock (800 x $19) ....................................

13,600
1,600

Cash (500 x $14) .................................................................

Retained Earnings (500 x $5) .............................................
Treasury Stock (500 x $19) ....................................

7,000
2,500

Cash (600 x $20) .................................................................

Treasury Stock (600 x $19) ....................................
Paid-in Capital, Treasury Stock..............................

12,000

38,000

15,200

9,500

11,400
600

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PROBLEM 15-6 (Req. a. only)

1.

2.

3.

4.

5.

6.

Treasury Stock (280 X $97) ...............................................................................

Cash .........................................................................................................

27,160

Retained Earnings .............................................................................................

Cash Dividends Payable [(4,800 280) X $20] .......................................

90,400

Cash Dividends Payable ....................................................................................

Cash ........................................................................................................

90,400

Cash (280 X $102) .............................................................................................

Treasury Stock (280 X $97) .....................................................................
Paid-in Capital, Treasury Stock (280 X $5) ......................................... ......

28,560

Treasury Stock (500 X $105) .............................................................................

Cash ........................................................................................................

52,500

Cash (350 X $96) ...............................................................................................

Paid-in Capital, Treasury Stock ..........................................................................
Retained Earnings ..............................................................................................
Treasury Stock (350 X $105) ...................................................................

33,600
1,400
1,750

27,160

90,400

90,400

27,160
1,400

52,500

36,750

PROBLEM 15-8
Note: # shares issued (& outstanding since there is no treasury stock) = $20,000 / 5 = 4,000
NE = no effect

(a)
(b)
(c)
(d)
(e)
(1)
(2)
(3)
(4)
(5)
(6)

Total Assets
$2,000 (1)
NE
NE
$12,000 (6)
NE

Common stock
NE
+ $2,000 (2)
+ $6,000 (5)
NE
NE

PIC in Excess of Par

NE
+ $3,600 (3)
NE
NE
NE

Retained Earnings
$2,000 (1)
$5,600 (4)
$6,000 (5)
$12,000 (6)
NE

Total Stkhldrs Equity

$2,000 (1)
NE
NE
$12,000 (6)
NE

(4,000 X $.50)
[(4,000 X 10%) = 400 X $5]
[(400 X $14) $2,000]
(400 x $14))
[(4,000 X 30%) = 1,200 X $5]
[(4,000 / 2 = 2,000 X $6)]; or + from $8,000 gain (2,000 x $4) $20,000 dividend (2,000 x $10)

PROBLEM 15-11 (a & b only)

(a) May 5

Retained Earnings (3,000,000 x $.60) ...........................................

Cash Dividends Payable ........................................................

1,800,000

Jun. 30 Cash Dividends Payable ...............................................................

Cash .......................................................................................

1,800,000

(b) Nov. 30 Retained Earnings [(3,000,000 x 6%) = 180,000 x $34] ..............

Common Stock Dividend Distributable (180,000 x $10) .......
Paid-in Capital in Excess of Par--Common ..........................

6,120,000

Dec. 31 Common Stock Dividend Distributable ........................................

Common Stock .....................................................................

1,800,000

1,800,000

1,800,000

1,800,000
4,320,000

1,800,000