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Chapter 13

Corporations: Organization, Stock Transactions, and Dividends


Study Guide Solutions
Fill-in-the-Blank Equations
1. Premium
2. Discount
3. Earnings per share

Exercises
1. Which of the following is true of a corporation? If a description is false, why?
a. No; owners have limited liability
b. Yes
c. No; a corporations life is separate from its owners
2. Which of the following characteristics relate to a corporation?
a. No
b. Yes
c. Yes
3. A corporation has which of the following characteristics?
a. Yes
b. Yes
c. No
Strategy: Because a corporation provides limited liability and will be a separate legal
entity, formation requires a large amount of paperwork and regulatory costs. Since the
corporation is a separate legal entity, the life continues indefinitely. Issuing stock gives
the corporation an easy way to raise a large amount of capital and shareholders an easy
way to transfer ownership.
4. Upon formation, Apple Tree Corp. incurred the following expenses: incorporation fees,
$2,200; legal fees, $1,500; and state incorporation fees, $4,000. Prepare the journal
entry to record the payment of these expenses on January 1, 2015.
Jan. 1 Organizational Expenses 7,700
Cash
7,700

1
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Chapter 13

5. Upon formation on August 15, 2015, Snacksters Corp. incurred the following expenses:
promotional costs, $1,750; legal fees, $950; and state incorporation fees, $6,200.
Prepare the journal entry to record the payment of these expenses.
Aug. 15 Organizational Expenses 8,900
Cash
8,900
6. Pen Supply Corp. began operations on March 1, 2015. On this date the company paid for
the following expenses: legal fees related to organization, $5,000; rent for the upcoming
month, $1,500; license fees, $2,000; promotional costs, $1,200; and insurance for the
fiscal year, $9,000. Prepare the journal entry to record the organizational expenses paid.

Mar. 1 Organizational Expenses 8,200


Cash
8,200
Organizational expenses: $5,000 + $2,000 + $1,200
Strategy: Organizational expenses are one-time expenses related to the formation of the
corporation and will not be paid again at a later date. To record the expenses, debit
Organizational Expenses for the amount and credit Cash for the amount paid.
7. For its 2015 fiscal year, Pet Supply Corp. had a net income of $32,400. It also paid
$15,800 in dividends. If the balance of retained earnings was $41,100 at the beginning
of the year, what will the balance be at year-end?
Retained Earnings
41,100
15,800 32,400
57,700

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Corporations: Organization, Stock Transactions, and Dividends

8. Reeds Corp.s retained earnings had a balance of $25,600 as of the beginning of its fiscal
year, January 1, 2015. The company had a net loss of $8,950 and paid $10,200 to its
shareholders in dividends. What will the balance of retained earnings be at the yearend? Prepare the journal entries to record the changes.
Retained Earnings
8,950 25,600
10,200
6,450
Dec. 31 Retained Earnings
8,950
Income Summary
8,950
31 Retained Earnings
10,200
Dividends
10,200
9. For its fiscal year ending September 30, 2015, Snacksters Corp. earned a net income of
$52,100. It paid $42,500 of this to its shareholders. If the corporations retained
earnings account had a beginning balance of $5,200, what is the ending balance? Also
prepare the journal entries to record the changes in retained earnings.
Retained Earnings
5,200
42,500
52,100
14,800
Sept. 30 Income Summary
52,100
Retained Earnings
52,100
30 Retained Earnings
42,500
Dividends
42,500
Strategy: Retained earnings are earnings held by the company over time that hasnt
been distributed to shareholders. If the company has a positive income, retained
earnings will increase because the company will have more income to distribute to
shareholders. Dividends paid to shareholders and a net loss will decrease retained
earnings. Since the retained earnings account has a normal credit balance, a credit will
increase the account and a debit will decrease the account.

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Chapter 13

10. Shem Creek Corp. has $52,000 of common stock outstanding and $15,000 of treasury
stock. If the corporation has $24,000 of common stock not issued, calculate the
following:
a. Dollar value of shares issued
$67,000; ($52,000 + $15,000)
b. Dollar value of shares authorized to issue
$91,000; ($52,000 + $15,000 + $24,000)
11. Burns Alley has $16,700 of common stock issued to shareholders. The company holds
$4,200 in treasury stock. What is the dollar value of the common stock outstanding? If
the company also has $4,300 of stock not yet issued, what is the dollar value of the
common stock the corporation has authorized?
Outstanding: $12,500 = ($16,700 $4,200)
Authorized: $21,000 = ($16,700 + $4,300)
12. Apple Tree Corp. has $2,400 of treasury stock currently and $25,000 of common stock
outstanding. If the company has $37,000 authorized, how much is not issued to
shareholders?
$9,600; [$37,000 ($25,000 + $2,400)]
Strategy: Authorized shares are the total number of shares that a corporation may
legally issue to shareholders. The number of shares issued is the amount that the
company has released to shareholders for sale. The outstanding stock is the stock held in
the hands of the stockholders. If there is a difference between the shares issued and the
shares outstanding, the corporation probably repurchased some of the stock to hold as
treasury stock.

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Corporations: Organization, Stock Transactions, and Dividends

13. In 2015, Shem Creek Corp. paid $42,000 dividends to its shareholders. At the time, the
corporation had 4,000 shares of cumulative preferred $5 stock, $10 par and 3,000
shares of common stock, $5 par issued. If no dividends were paid in 2014, determine
how much each preferred and common shareholder will receive.
Total dividends paid
$ 52,000
Preferred stockholders:
2014 dividends in arrears (4,000 shares $5) $20,000
2015 dividend (4,000 shares $5)
20,000
Total preferred dividends paid
(40,000)
Dividends available to common shareholders
$ 12,000
Preferred shareholders ($40,000/4,000 shares)
Common shareholders ($12,000/3,000 shares)

$10.00
$4.00

14. Snacksters Corp. paid a total of $60,000 in dividends for the year. The corporation
currently had 10,000 shares of $5 par value common stock issued and 5,000 of $5
cumulative preferred stock with a $100 par value. The corporation has paid dividends in
all of the previous years. How much will each common and preferred shareholder
receive?
Total dividends paid
Preferred stockholders:
2015 dividend (5,000 shares $5)
Dividends available to common shareholders
Preferred shareholders ($25,000/5,000 shares)
Common shareholders ($35,000/10,000 shares)

$ 60,000
(25,000)
$ 35,000
$5.00
$3.50

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Chapter 13

15. Burns Alley paid a total of $75,000 in dividends during 2015. For the year, the
corporation had 3,000 shares of cumulative preferred $6 stock, $15 par and 15,000
shares of common stock, $10 par issued. The corporation did not pay dividends in 2013
or 2014. Determine how much each common and preferred shareholder will receive.
Total dividends paid
Preferred stockholders:
2013 dividends in arrears (3,000 shares $6)
2014 dividends in arrears (3,000 shares $6)
2015 dividend (3,000 shares $6)
Total preferred dividends paid
Dividends available to common shareholders

$ 75,000
$18,000
18,000
18,000
(54,000)
$ 21,000

Preferred shareholders ($54,000/3,000 shares)


Common shareholders ($21,000/15,000 shares)

$18.00
$1.40

Strategy: Since preferred shareholders have higher rights than common shareholders,
dividends should first be allocated to the preferred shareholders. If the corporation has
cumulative preferred stock outstanding, the dividends must be allocated to any
dividends in arrears to ensure the shareholders receive the amount promised annually
and the current dividends for the preferred shareholders. Any remaining dividends
should be allocated to the total number of common shareholders.
16. On September 5, 2015, Olive Oils Corp. issued 4,000 shares of $20 par preferred stock
and 25,000 shares of $5 par common stock at par for cash. Prepare the journal entry to
record the stock issue.
Sept. 5 Cash
205,000
Preferred Stock
80,000
Common Stock
125,000

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Corporations: Organization, Stock Transactions, and Dividends

17. Using the same information as Exercise 16, assume the corporation issued the preferred
stock for $25 and the common stock for land with a current market value of $200,000.
Prepare the journal entry to record the stock issue.
Sept. 5 Cash
100,000
Land
200,000
Preferred Stock
80,000
Common Stock
125,000
Paid-In Capital in Excess of ParPreferred Stock
20,000
Paid-In Capital in Excess of ParCommon Stock
75,000
18. Tortoise Cleaning Corp. issued 15,000 shares of $3 par preferred stock, 20,000 of $2 par
preferred stock, and 10,000 shares of $5 par common stock at par for cash on March 20,
2015. Prepare the journal entry to record the stock issue.
Mar. 20 Cash
135,000
Preferred Stock
85,000
Common Stock
50,000
Preferred stock: ($3 15,000 shares) + ($2 20,000 shares)
19. Use the same information as Exercise 18, except that Tortoise Cleaning Corp. issued the
$3 par preferred stock for $10 a share and the $2 par preferred stock for $7 a share. The
common stock also sold at a premium for $7 per share. Prepare the journal entry to
record the stock issue.
Mar. 20 Cash
360,000
Preferred Stock
85,000
Common Stock
50,000
Paid-In Capital in Excess of ParPreferred Stock
205,000
Paid-In Capital in Excess of ParCommon Stock
20,000
Paid-In capital in excess of parpreferred stock: ($7 premium 15,000 shares) + ($5
premium 20,000 shares)

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Chapter 13

20. Upon formation on May 12, 2015, Big Zero issued 3,000 shares each of $10 par
preferred stock and $8 par common stock at par. Prepare the journal entry to record the
stock issue.
May 12 Cash
54,000
Preferred Stock
30,000
Common Stock
24,000
Strategy: If shares are issued at par, the shareholders did not pay any premium, or
excess over the par value. The cash received is equal to the stocks par value. To show an
increase in the stock outstanding, credit the stock account for the par value and debit
Cash for the amount received.
21. Instead of issuing the stock at par as in Exercise 20, Big Zero issued the preferred and
common stock for $12 per share. Prepare the journal entry to record the stock issue.
May 12 Cash
72,000
Preferred Stock
30,000
Common Stock
24,000
Paid-In Capital in Excess of ParPreferred Stock
6,000
Paid-In Capital in Excess of ParCommon Stock
12,000
Strategy: Even if a shareholder pays a premium for the stock, the stock account still must
be credited for the par value. The premium, or amount paid over the par value, is shown
in the Paid-In Capital in Excess of Par account, which is also increased with a credit.
22. On March 16, 2015, a corporation issued 3,000 shares of no-par common stock for $3
per share and 4,000 shares of no-par preferred stock for $5 per share. Prepare the
journal entry to record the transaction.
Mar. 16 Cash
29,000
Preferred Stock
20,000
Common Stock
9,000

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Corporations: Organization, Stock Transactions, and Dividends

23. Ole Corp. issued 5,000 shares of no-par common stock for $10 per share on April 1,
2015. The common stock had a stated value of $5 per share. On June 1, 2015, the
corporation issued 2,000 shares of the same common stock for $7 per share. Prepare
the journal entries to record the stock issues.
April 1 Cash
50,000
Common Stock
25,000
Paid-In Capital in Excess of Stated Value
25,000
June 1 Cash
14,000
Common Stock
10,000
Paid-In Capital in Excess of Stated Value
4,000
24. Upon formation on July 10, 2015, Tortoise Cleaning Corp. issued 2,500 shares of no-par
common stock for $6 per share and 6,100 shares of no-par preferred stock for $10 per
share. On September 12, 2015, the corporation issued 1,000 more shares of the same
common stock for $5 per share. Prepare the journal entries to record these
transactions.
July 10 Cash
76,000
Common Stock
15,000
Preferred Stock
61,000
Sept. 12 Cash
5,000
Common Stock
5,000
Strategy: The journal entry to record the issuance of no-par stock is the same as if it was
issued at par, because there is no premium to record. However, if the stock has a stated
value and sold for higher than the stated value, the journal entry will be the same as if
the stock had been sold over its par value.
25. On May 16, 2015, the board of directors authorized a $3 dividend for all common stock
outstanding and an $8 dividend for all preferred stock outstanding. The corporation had
5,000 shares of common stock and 3,500 shares of preferred stock. One month later,
the corporation determines there are 1,000 shareholders to receive the cash dividends.
The dividend is paid on April 30, 2015. Prepare the journal entry required on each of the
dates.
Declaration Date
Record Date
Date of Payment

May 16 Cash Dividends


Cash Dividends Payable
April 16 No entry
30 Cash Dividends Payable
Cash

43,000

43,000

43,000

43,000

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10

Chapter 13

26. On June 1, 2015, RPC Corporation announced a cash dividend of $52,000 for the year.
The company determined the shareholders to receive the dividends on July 5, 2015, and
made the disbursement on July 18, 2015. Prepare the journal entry required as of each
date.
Declaration Date
Record Date
Date of Payment

June 1 Cash Dividends


Cash Dividends Payable
July 5 No entry
18 Cash Dividends Payable
Cash

52,000

52,000

52,000

52,000

27. Reeds Corp. decided to pay the dividends below on August 1, 2015. On September 20,
2015, the corporation determined the owners of the stock and made the cash payment
on the first of the following month. Prepare the journal entries required.
Dividends per share Total dividends
10,000 shares of preferred stock, $20 par
$4.50
$45,000
20,000 shares of common stock, $5 par
$2.10
42,000
$87,000

Declaration Date
Record Date
Date of Payment

Aug. 1 Cash Dividends


Cash Dividends Payable
Sept. 20 No entry
Oct. 1 Cash Dividends Payable
Cash

87,000

87,000

87,000

87,000

Strategy: On the date of declaration, the corporation must record the liability for the
dividends to be paid by debiting Cash Dividends and crediting Cash Dividends Payable for
the amount to be paid. The record date does not require a journal entry because a
transaction does not occur. On the date of payment, the liability is paid, so the liability
must be removed (debit Cash Dividends Payable) and Cash should be decreased.

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Corporations: Organization, Stock Transactions, and Dividends

11

28. Silver Dollar Corp. had the balances below on January 15, 2015, in its stockholders
equity accounts. On that same day, the company declared a 2% stock dividend, when
the stock had a current market value of $20 per share. The stock dividends are
distributed on February 20, 2015. Prepare the journal entries required on each date.
Common Stock, $2 par (100,000 shares issued)
$200,000
Paid-In Capital in Excess of ParCommon Stock
470,000
Retained Earnings
1,060,000

Jan. 15 Stock Dividends


40,000
Stock Dividends Distributable
4,000
Paid-In Capital in Excess of ParCommon Stock
36,000
Feb. 20 Stock Dividends Distributable
4,000
Common Stock
4,000
Shares Issued: 100,000 shares 2% dividend
Stock Dividends: 2,000 shares issued $20 per share
Stock Dividends Distributable: 2,000 shares issued $2 par
Paid-In Capital in Excess of Par: 2,000 shares issued $18 premium
29. Shem Creek declared a 10% stock dividend on March 2, 2015, when its stockholders
equity accounts had the balances listed. On this date, the market value of common
stock was $70 a share. The company distributed the dividends on April 15, 2015.
Prepare the journal entries required on each date.
Common Stock, $10 par (250,000 shares issued) $2,500,000
Paid-In Capital in Excess of ParCommon Stock 18,750,000
Retained Earnings
54,350,000

Mar. 2 Stock Dividends


1,750,000
Stock Dividends Distributable
250,000
Paid-In Capital in Excess of ParCommon Stock
1,500,000
April 15 Stock Dividends Distributable
250,000
Common Stock
250,000
Shares Issued: 250,000 10%
Stock Dividends: 25,000 shares issued $70 per share
Stock Dividends Distributable: 25,000 shares issued $10 par
Paid-In Capital in Excess of Par: 25,000 shares issued $60 premium

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12

Chapter 13

30. RPC Corporation declared a 6% stock dividend on May 7, 2015. On this date, its
stockholder equity accounts had the balances listed and the current price of the
common stock was $15. Prepare the journal entries required to record if the dividends
were distributed on June 25, 2015.
Common Stock, $1.50 par (120,000 shares issued)
Paid-In Capital in Excess of ParCommon Stock
Retained Earnings

$180,000
2,160,000
4,470,000

May 7 Stock Dividends


108,000
Stock Dividends Distributable
10,800
Paid-In Capital in Excess of ParCommon Stock
97,200
June 25 Stock Dividends Distributable
10,800
Common Stock
10,800
Shares Issued: 120,000 6%
Stock Dividends: 7,200 shares issued $15 per share
Stock Dividends Distributable: 7,200 shares issued $1.50 par
Paid-In Capital in Excess of Par: 7,200 shares issued $13.50 premium
Strategy: Before recording the liability for the stocks distributable, determine the
number of stocks that will be issued to the shareholders and their total value. Increase
the liability (Stock Dividends Distributable) by the par value of the stock on the date of
declaration. If the value of the stock is greater than its par value, credit Paid-In Capital in
Excess of Par for the difference, since the company is essentially paying for the stock.
On the date of payment, debit the liability and credit the stock account to show an
increase in the stock outstanding.

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Corporations: Organization, Stock Transactions, and Dividends

13

31. Burns Alley has 35,000 shares of $5 common stock outstanding on April 20, 2015. The
paid-in capital in excess of par account related to the common stock has a balance of
$120,000. Use the cost method to prepare the following transactions:
a. The corporation purchased 10,000 of its common stock for $10 a share on April
22, 2015.
April 22 Treasury Stock 100,000
Cash
100,000
b. The corporation sells 6,500 of its treasury stock for $12 a share on May 5, 2015.
May 5 Cash
78,000
Treasury Stock
65,000
Paid-In Capital from Sale of Treasury Stock
13,000
c. The corporation sells 1,000 of its treasury stock for $7.50 a share on May 25,
2015.
May 25 Cash
7,500
Paid-In Capital from Sale of Treasury Stock 2,500
Treasury Stock
10,000

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14

Chapter 13

32. Big Zero has the following account balances on July 1, 2015:
Common Stock, $10 par (120,000 shares authorized & issued) $1,200,000
Excess of issue price over par
3,600,000
Retained Earnings
5,200,500

Use the cost method to prepare the journal entries required for the transactions:
a. Purchase of 25,000 of common stock for $42 per share on July 5, 2015
July 5 Treasury Stock 1,050,000
Cash
1,050,000
b. Sale of 10,000 of treasury stock for $38 per share on July 15, 2015
July 15 Cash
380,000
Retained Earnings 40,000
Treasury Stock
420,000
c. Sale of 4,000 of treasury stock for $44 per share on August 5, 2015
Aug. 5 Cash
176,000
Treasury Stock
168,000
Paid-In Capital from Sale of Treasury Stock
8,000

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Corporations: Organization, Stock Transactions, and Dividends

15

33. Pet Supply Corp. has the following account balances on August 1, 2015:
Common Stock, $2 par (75,000 shares authorized & issued) $150,000
Excess of issue price over par
1,590,000
Treasury Stock (10,000 shares)
275,000
Retained Earnings
3,750,300

Using the cost method, prepare the journal entries required for the corporation:
a. Sale of 3,500 shares of treasury stock for $30 on August 9, 2015
Aug. 9 Cash
105,000
Treasury Stock
96,250
Paid-In Capital from Sale of Treasury Stock
8,750
Treasury Stock: 3,500 shares $27.50 per share ($275,000/10,000 shares)
b. Purchase of 5,000 common stock for $26 per share on September 15, 2015
Sept. 15 Treasury Stock 130,000
Cash
130,000
c. Purchase of 1,500 treasury stock for $25 per share on September 30, 2015
Sept. 30 Treasury Stock 37,500
Cash
37,500
Strategy: To record the purchase of treasury stock under the cost method, debit Treasury
Stock for the amount paid by the corporation. Upon sale, credit Treasury Stock for the
cost of the stock to the corporation. If the corporation receives more than the amount
paid, credit Paid-In Capital from Sale of Treasury Stock for the difference. If the
corporation receives less than the amount paid, debit Paid-In Capital from Sale of
Treasury Stock for the difference, if there is enough of a credit balance to cover the
difference. If the paid-in capital account does not have enough to cover the loss, debit
Retained Earnings, which reduces the amount of accumulated earnings held by the
company.

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16

Chapter 13

34. With the account balances below, prepare the stockholders equity section of the
balance sheet. The corporation has 20,000 shares authorized and 4,000 shares have
been reacquired.
Common Stock, $15 par
Retained Earnings
Treasury Stock
Paid-In Capital in Excess of Par

$150,000
850,400
84,000
195,750

Stockholders' Equity
Paid-in capital:
Common stock, $15 par (20,000 shares authorized, 10,000 issued)
Excess of issue price over par
Total paid-in capital
Retained earnings
Total
Deduct treasury stock (4,000 shares at cost)
Total stockholders' equity

$150,000
195,750
$ 345,750
850,400
$1,196,150
84,000
$1,112,150

35. Prepare the stockholders equity section of the balance sheet using the account
balances below. The corporation has 100,000 shares authorized and 15,000 shares have
been reacquired.
Common Stock, $5 par
$375,000
Retained Earnings
5,975,000
Treasury Stock
112,500
Paid-In Capital in Excess of Par
1,290,000
Paid-In Capital from Sale of Treasury Stock
47,500
Stockholders' Equity
Paid-in capital:
Common stock, $5 par (100,000 shares authorized, 75,000 issued)
Excess of issue price over par
From sale of treasury stock
Total paid-in capital
Retained earnings
Total
Deduct treasury stock (4,000 shares at cost)
Total stockholders' equity

$ 375,000
1,290,000
47,500
$1,712,500
5,975,000
$7,687,500
112,500
$7,575,000

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Corporations: Organization, Stock Transactions, and Dividends

17

36. Use the account balances below to prepare the stockholders equity section of the
companys balance sheet. The corporation has 75,000 shares authorized and 4,000
shares have been reacquired.
Common Stock, $20 par
Retained Earnings
Treasury Stock
Paid-In Capital in Excess of Par
Paid-In Capital from Sale of Treasury Stock

$1,200,000
3,470,000
57,000
1,920,000
15,200

Stockholders' Equity
Paid-in capital:
Common stock, $20 par (75,000 shares authorized, 60,000 issued)
Excess of issue price over par
From sale of treasury stock
Total paid-in capital
Retained earnings
Total
Deduct treasury stock (4,000 shares at cost)
Total stockholders' equity

$1,200,000
1,920,000
15,200
$3,135,200
3,470,000
$6,605,200
57,000
$6,548,200

Strategy: First, list the paid-in capital, which will include common and preferred stock
currently issued and any excess received over par (or cost for treasury stock). Add
retained earnings and subtract any treasury stock to determine total stockholders
equity. The treasury stock is subtracted because it is included in paid-in capital, since the
balance includes all stock issued.
37. At the beginning of its fiscal year on January 1, 2015, Tortoise Cleaning Corporation had
a balance in its retained earnings account of $6,200,000. During the year, it suffered a
$1,200,000 net loss but was able to pay a $52,750 dividend to its common shareholders.
Prepare the retained earnings statement for its 2015 fiscal year.
Tortoise Cleaning Corporation
Retained Earnings Statement
For the Year Ended December 31, 2015
Retained earnings, Jan 1, 2015
$6,200,000
Less net loss
$1,200,000
Common stock dividends
52,750
Decrease in retained earnings
1,252,750
Retained earnings, Dec. 31, 2015
$4,947,250

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18

Chapter 13

38. At the beginning of its fiscal year on April 1, 2015, Olive Oils Corp. had a balance of
$4,740,000 in its retained earnings account. The company generated its highest net
income ever of $4,150,750, so it paid large dividends of $975,000 and $750,000 to its
preferred and common shareholders, respectively. Prepare the 2015 fiscal year retained
earnings statement for the company.
Olive Oils Corp.
Retained Earnings Statement
For the Year Ended March 31, 2016
Retained earnings, April 1, 2015
Net income
$4,150,750
Less dividends:
Preferred stock dividends
$975,000
Common stock dividends
750,000
1,725,000
Increase in retained earnings
Retained earnings, March 31, 2016

$4,740,000

2,425,750
$7,165,750

39. RPC Corporations retained earnings account had a balance of $2,150,000 as of the
beginning of its fiscal year, July 1, 2015. It only generated $950,000 of net income for
the year, but paid large dividends of $650,000 to its preferred shareholders and
$500,000 to its common shareholders to maintain investor confidence. Prepare the
2015 retained earnings statement for the company.
RPC Corporation
Retained Earnings Statement
For the Year Ended June 30, 2015
Retained earnings, July 1, 2015
Net income
$ 950,000
Less dividends:
Preferred stock dividends
$650,000
Common stock dividends
500,000
1,150,000
Decrease in retained earnings
Retained earnings, June 30, 2016

$2,150,000

200,000
$1,950,000

Strategy: The retained earnings statement shows the changes in retained earnings for
the year. After the header, list the beginning retained earnings first. Next, show the
changes in the account. Net income increases the account while a net loss will decrease
the account. Any dividends paid will also decrease the account.

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Corporations: Organization, Stock Transactions, and Dividends

19

40. Using the information from Exercise 37 and the account balances below, prepare
Tortoise Cleaning Corporations statement of stockholders equity. The company also
issued 20,000 shares of $10 preferred stock for $25 per share.
Common Stock
$175,000
Preferred Stock
200,000
Additional Paid-In Capital 400,000
Treasury Stock
10,000

Balance, Jan. 1, 2015


Net loss
Dividends on common
stock
Issuance of additional
preferred stock
Balance, Dec. 31, 2015

Tortoise Cleaning Corporation


Statement of Stockholders' Equity
For the Year Ended December 31, 2015
Preferred Common
Additional
Retained
Stock
Stock
Paid-In Capital
Earnings
$200,000 $175,000
$400,000
$6,200,000
(1,200,000)

200,000
$400,000

$175,000

300,000
$700,000

Treasury
Stock
$(10,000)

Total
$6,965,000
(1,200,000)

(52,750)

(52,750)

$4,947,250

500,000
$6,212,250

$(10,000)

41. During its 2015 fiscal year, Olive Oils Corp. issued 10,000 shares of $5 preferred stock for
$12 per share. It also purchased 5,000 shares of treasury stock for $50,000. Use the
information from Exercise 38 and the beginning balances below to prepare the
statement of stockholders equity.
Olive Oils Corp.
Statement of Stockholders' Equity
For the Year Ended March 31, 2016
Additional
Preferred Common
Paid-In
Retained
Stock
Stock
Capital
Earnings

Treasury
Stock

Balance, April 1, 2015


Net income
Dividends on preferred stock
Dividends on common stock
Issuance of additional
preferred stock
Purchase of treasury stock

$125,000

$ (7,500)

Balance, March 31, 2016

$175,000

$320,000

50,000

$1,520,000

$4,740,000
4,150,750
(975,000)
(750,000)

70,000

$320,000

$1,590,000

$7,165,750

Total
$6,697,500
4,150,750
(975,000)
(750,000)

(50,000)

120,000
(50,000)

$(57,500)

$9,193,250

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20

Chapter 13

42. Prepare RPC Corporations statement of stockholders equity using the information in
Exercise 39 and the account balances below. During the year, the corporation issued an
additional 4,000 shares of $4 common stock for $22 each and sold half of the treasury
stock for $5,000.
RPC Corporation
Statement of Stockholders' Equity
For the Year Ended June 30, 2015
Preferred Common
Additional
Retained
Stock
Stock
Paid-In Capital
Earnings
Balance, July 1, 2015
Net income
Dividends on
preferred stock
Dividends on common
stock
Issuance of additional
common stock
Sale of treasury stock
Balance, June 30, 2016

$100,500

$220,000

16,000
$100,500

$236,000

$3,250,000

72,000
2,000
$3,324,000

$2,150,000
950,000

Treasury
Stock
$(6,000)

Total
$5,714,500
950,000

(650,000)

(650,000)

(500,000)

(500,000)

$1,950,000

3,000
$(3,000)

88,000
5,000
$5,607,500

Strategy: The statement of stockholders equity shows the changes in all stockholders
equity accounts. After the heading, list all beginning balances of the stockholders equity
accounts and a total column. Next, add net income (or subtract the net loss) and also
subtract the dividends from retained earnings. If more shares are issued, the stock
increase the stock balance account for the par value and increase additional paid-in
capital for any excess amounts. The purchase of treasury stock will increase the account
balance while the sale of treasury stock will decrease the account balances (with any
excess received over cost to additional paid-in capital).
43. Snacksters Corp. had 40,000 shares of common stock outstanding with a $6 par on
August 24, 2014. The next day, the board of directors announced a 3-for-1 stock split.
Determine how many stocks will be outstanding after the stock split and the par value of
each share.
Number of shares
Par value per share

Before Split
40,000

After Split

120,000
(40,000 shares 3)
$6
$2
($240,000/120,000 shares)
$240,000
$240,000

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Corporations: Organization, Stock Transactions, and Dividends

21

44. RPC Corporation had 25,000 shares of common stock $10 par outstanding on March 5,
2015, before a 5-for-2 stock split. Determine how many stocks will be outstanding after
the split and the par value of each share.
Number of shares
Par value per share

Before Split
25,000

After Split

62,500
(25,000 shares 5/2)
$10
$4
($250,000/62,500 shares)
$250,000
$250,000

45. Tortoise Cleaning Corporation had 90,000 shares of common stock outstanding on June
1, 2015, with each share having a $20 par value. The corporation announced a 4-for-1
stock split on this date. Prior to the split, Jen Vester held 2,000 shares of the
corporations common stock. Determine the total number of shares outstanding and the
par value of each share after the stock split. Will Jen have a change in ownership after
the split?
Number of shares
Par value per share

Before Split
90,000

After Split

360,000
(90,000 shares 4)
$20
$5
($1,800,000/360,000 shares)
$1,800,000
$1,800,000

Jens percentage of ownership will not change due to the stock split:
Before Split
Number of shares
2,000
Par value per share
$20
$40,000
Ownership percentage
2.22%

After Split
8,000
$5
$40,000
2.22%

Strategy: In a stock split, the number of shares increases by the amount determined by
the corporation. A 3-for-2 stock split will give each shareholder three new shares for
every two shares owned. To calculate the new par value per share, divide the total par
value (which remains the same) by the number of shares outstanding after the split.
Ownership percentages will not change as a result of the split because each shareholder
will receive the same percentage of stocks as all other shareholders.

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22

Chapter 13

46. Calculate Burns Alleys earnings per share for 2015 and 2016 using the information
given. For both years, the company had no preferred stock outstanding. Round answers
to the nearest cent and determine if the change is favorable or unfavorable.
Net income
Average number of common shares outstanding
Earnings per share

2016
$10,800,000
123,500
$87.45

2015
$9,250,750
120,800
$76.58

The increase in earnings per share is a favorable trend.


47. Calculate Apple Tree Corp.s earnings per share for 2015 and 2016, rounding to the
nearest cent. Determine if the company became more profitable or less profitable in
2016.
Net income
Preferred dividends
Average number of common shares
outstanding
Earnings per share

2016
$11,750,000
$600,500

2015
$8,950,000
$220,100

240,600
$46.34

225,300
$38.75

EPS 2015: ($8,950,000 $220,100)/225,300


EPS 2016: ($11,750,000 $600,500)/240,600
The increase in earnings per share indicates that the company is more profitable in
2016.

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Corporations: Organization, Stock Transactions, and Dividends

23

48. Use the information in the table below to calculate RPC Corporations earnings per
share for 2015 and 2016. Round answers to the nearest cent and determine if the
change is favorable or unfavorable.
Net income
Preferred stock outstanding
Dividends paid per preferred stock
Total preferred dividends
Average number of common shares outstanding
Earnings per share

2016
$1,090,250
100,600
$2
$201,200
115,325
$7.71

2015
$1,005,000
100,000
$1.75
$175,000
100,325
$8.27

EPS 2015: ($1,005,000 $175,000)/100,325


EPS 2016: ($1,090,250 $201,200)/115,325
The decrease in earnings per share in 2016 is unfavorable.
Strategy: First, subtract the amount of dividends paid to the preferred shareholders from
net income because this will result in less earnings allocable to the common
shareholders. Next, divide the result by the average number of common shares
outstanding to calculate the earnings per share. The earnings per share ratio indicates
how much of net income is allocable to the common shareholders. Some investors base
their decision on this number, so higher earnings per share is favorable because it seems
more attractive to the investors. A low earnings per share indicates the company does
not generate a high amount of income to distribute to shareholders.

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