Chapter 11 Brief Exercises PDF

CHAPTER 11 BRIEF EXERCISES Be. 215 Patrick Corporation is authorized to issue 1,000,000 shares of $1 par value common stock. Dur- ing 2016, the company has the following stock transactions. Jan. 15 Issued 600,000 shares of stock at $7 per share. Sept....

CHAPTER 11 BRIEF EXERCISES Be. 215 Patrick Corporation is authorized to issue 1,000,000 shares of $1 par value common stock. Dur- ing 2016, the company has the following stock transactions. Jan. 15 Issued 600,000 shares of stock at $7 per share. Sept. 5 Purchased 20,000 shares of common stock for the treasury at $8 per share. Dec. 6 Declared a $0.50 per share dividend to stockholders of record on December 20, pay- able January 3, 2017. Instructions Journalize the transactions for Patrick Corporation. Be. 216 An inexperienced accountant for Teahan Corporation made the following entries. July 1 Cash.................................................................................. 170,000 Common Stock.......................................................... 170,000 (Issued 20,000 shares of no-par common stock, stated value $6 per share) Sept. 1 Common Stock................................................................... 36,000 Retained Earnings.............................................................. 24,000 Cash.......................................................................... 60,000 (Purchased 4,000 shares issued on July 1 for the treasury at $15 per share) Instructions On the basis of the explanation for each entry, prepare the entry that should have been made for the transactions. (Omit explanations.) 1  CHAPTER 11 Be. 218 Samson Company had the following transactions. 1. Issued 4,000 shares of $100 par preferred stock at $107 for cash. 2. Issued 8,000 share of common stock with a par value of $10 for $110,000. 3. Purchased 500 shares of treasury common stock for $12,000. Instructions Prepare the journal entries to record the above stock transactions. Be. 221 Lindy Corporation has 1,000,000 authorized shares of $20 par value common stock. As of June 30, 2017, there were 600,000 shares issued and outstanding. On June 30, 2017, the board of directors declared a $0.30 per share cash dividend to be paid on August 1, 2017. Instructions Prepare the necessary journal entries to be recorded on (a) the date of declaration, (b) the date of record, and (c) the date of payment. Be. 222 On November 1, 2017, Kalen Corporation’s stockholders’ equity section is as follows: Common stock, $10 par value $600,000 Paid-in capital in excess of par value 180,000 Retained earnings 200,000 Total stockholders’ equity $980,000 On November 1, Kalen declares and distributes a 15% stock dividend when the market value of the stock is $14 per share. Instructions Indicate the balances in the stockholders’ equity accounts after the stock dividend has been dis- tributed. 2  CHAPTER 11 Be. 224 The following information is available for Epstein Corporation 2017 2016 Average common stockholders’ equity $ 1,500,000 $ 1,000,000 Average total stockholders’ equity 2,000,000 1,500,000 Common dividends declared and paid 72,000 50,000 Preferred dividends declared and paid 30,000 30,000 Net income 240,000 200,000 Instructions Compute the payout ratio and return on common stockholders’ equity ratio for both years. Briefly comment on your findings. 3  CHAPTER 11 EXERCISES Ex. 227 Miles Co. had these transactions during the current period. June 12 Issued 60,000 shares of $3 stated value common stock for cash of $250,000. July 11 Issued 2,000 shares of $100 par value preferred stock for cash at $106 per share. Nov. 28 Purchased 2,000 shares of treasury stock for $10,000. Instructions Prepare the journal entries for the preceding transactions. Ex. 228 On January 1, 2017 Browning Corporation had 75,000 shares of $1 par value common stock issued and outstanding. During the year, the following transactions occurred: Mar. 1 Issued 60,000 shares of common stock for $675,000 June 1 Declared a cash dividend of $2.00 per share to stockholders of record on June 15 June 30 Paid the $2.00 cash dividend Dec. 1 Purchased 5,000 shares of common stock for the treasury for $18 per share Dec. 15 Declared a cash dividend on outstanding shares of $2.50 per share to stockholders of record on December 31 Net income for 2017 amounted to $951,000. Instructions Prepare journal entries to record the above transactions. 4  CHAPTER 11 Ex. 230 The stockholders' equity section of Patrick Corporation's balance sheet at December 31 is pre- sented here: PATRICK CORPORATION Balance Sheet (partial) Stockholders' equity Paid-in capital Preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued and outstanding $ 300,000 Common stock, no par, 750,000 shares authorized, 600,000 shares issued 3,000,000 Total paid-in capital 3,300,000 Retained earnings 1,358,000 Total paid-in capital and retained earnings 4,658,000 Less: Treasury stock (6,000 common shares) (32,000) Total stockholders' equity $4,626,000 Instructions From a review of the stockholders' equity section, answer the following questions. (a) How many shares of common stock are outstanding? (b) Assuming there is a stated value, what is the stated value of the common stock? (c) What is the par value of the preferred stock? (d) If the annual dividend on preferred stock is $18,000, what is the dividend rate on preferred stock? (e) If dividends of $36,000 were in arrears on preferred stock, what would be the balance re- ported for retained earnings? 5  CHAPTER 11 Ex. 231 Ritchey Corporation has the following capital stock outstanding at December 31, 2017 9% Preferred stock, $100 par value, cumulative 12,000 shares issued and outstanding.................................................. $1,200,000 Common stock, no par, $10 stated value, 500,000 shares authorized, 300,000 shares issued and outstanding................................................ 3,000,000 The preferred stock was issued at $115 per share. The common stock was issued at an average per share price of $16. Instructions Prepare the paid-in capital section of the balance sheet at December 31, 2017 *Ex. 233 On January 1, 2017, the Black Corporation had $2,000,000 of $10 par value common stock out- standing that was issued at par and Retained Earnings of $1,000,000. The company issued 120,000 shares of common stock at $15 per share on July 1. On December 15, the board of di- rectors declared a 10% stock dividend to stockholders of record on December 31, 2016, payable on January 15, 2018. The market value of Black Corporation stock was $17 per share on De- cember 15 and $16 per share on December 31. Net income for 2017 was $500,000. Instructions (1) Journalize the issuance of stock on July 1 and the declaration of the stock dividend on De- cember 16. (2) Prepare the stockholders’ equity section of the balance sheet for Black Corporation at De- cember 31, 2017. 6  CHAPTER 11 Ex. 234 The stockholders’ equity section of Fleming Corporation at December 31, 2016 included the fol-lowing: 5% preferred stock, $100 par value, cumulative, 15,000 shares authorized, 10,000 shares issued and outstanding.... $1,000,000 Common stock, $10 par value, 250,000 shares authorized, 200,000 shares issued and outstanding........................................... $2,000,000 Dividends were not declared on the preferred stock in 2016 and are in arrears. On September 15, 2017, the board of directors of Fleming Corporation declared dividends on the preferred stock to stockholders of record on October 1, 2017, payable on October 15, 2017. On November 1, 2017, the board of directors declared a $2 per share dividend on the common stock, payable November 30, 2017, to stockholders of record on November 15, 2017. Instructions Prepare the journal entries that should be made by Fleming Corporation on the dates indicated below: September 15, 2017 November 1, 2017 October 1, 2017 November 15, 2017 October 15, 2017 November 30, 2017 7  CHAPTER 11 Ex. 235 On January 1 Weiss Corporation had 60,000 shares of no-par common stock issued and out- standing. The stock has a stated value of $5 per share. During the year, the following transactions occurred: Apr. 1 Issued 10,000 additional shares of common stock for $10 per share. June 15 Declared a cash dividend of $1.50 per share to stockholders of record on June 30. July 10 Paid the $1.50 cash dividend. Dec. 1 Issued 4,000 additional shares of common stock for $12 per share. 15 Declared a cash dividend on outstanding shares of $1.50 per share to stockholders of record on December 31. Instructions (a) Prepare the entries, if any, on each of the three dates that involved dividends. (b) How are dividends and dividends payable reported in the financial statements prepared at December 31? 8  CHAPTER 11 Ex. 237 Giraldi Corporation’s stockholders’ equity section at December 31, 2016, appears below: Stockholders’ equity Paid-in capital Common stock, $10 par, 60,000 outstanding $600,000 Paid-in capital in excess of par 162,500 Total paid-in capital $762,500 Retained earnings 150,000 Total stockholders’ equity $912,500 On June 30, 2017, the board of directors of Giraldi Corporation declared a 10% stock dividend, payable on July 31, 2017, to stockholders of record on July 15, 2017. The fair market value of Giraldi Corporation’s stock on June 30, 2017, was $16. On December 1, 2017, the board of directors declared a 2 for 1 stock split effective December 15, 2017. Giraldi Corporation’s stock was selling for $18 on December 1, 2017, before the stock split was declared. Par value of the stock was adjusted. Net income for 2017 was $210,000 and there were no cash dividends declared. Instructions (a) Prepare the journal entries on the appropriate dates to record the stock dividend and the stock split. (b) Fill in the amount that would appear in the stockholders’ equity section for Giraldi Corpora- tion at December 31, 2017, for the following items: 1. Common stock $____________ 2. Number of shares outstanding _____________ 3. Par value per share $____________ 4. Paid-in capital in excess of par $____________ 5. Retained earnings $____________ 6. Total stockholders’ equity $____________ 9  CHAPTER 11 Ex. 239 The following accounts appear in the ledger of Bradley, Inc., after the books are closed at De-cember 31, 2017. Common Stock, $1 par value, 800,000 shares authorized, 500,000 shares issued $500,000 Common Stock Dividends Distributable 80,000 Paid-in Capital in Excess of Par Value—Common Stock 950,000 Preferred Stock, $100 par value, 8%, 10,000 shares authorized; 4,000 shares issued 400,000 Retained Earnings 650,000 Treasury Stock (10,000 common shares) 40,000 Paid-in Capital in Excess of Par Value—Preferred Stock 75,000 Instructions Prepare the stockholders’ equity section at December 31, 2017, assuming that part of retained earnings is restricted for plant expansion in the amount of $200,000. Ex. 241 The following stockholders' equity accounts, arranged alphabetically, are in the ledger of Marvel Corporation at December 31, 2017. Common Stock ($5 stated value) $2,500,000 Paid-in Capital in Excess of Par Value—Preferred Stock 45,000 Paid-in Capital in Excess of Stated Value—Common Stock 1,050,000 Preferred Stock (8%, $100 par, noncumulative) 1,000,000 Retained Earnings 1,634,000 Treasury Stock—Common (10,000 shares) 98,000 Instructions Prepare the stockholders’ equity section of the balance sheet at December 31, 2017. 10  CHAPTER 11 Ex. 242 Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January 1, 2016. The following information is available for the com- pany for 2017 and 2016. 2017 2016 Net income $ 140,000 $ 120,000 Average stockholders' equity 1,000,000 800,000 Total assets 1,200,000 1,200,000 Current liabilities 100,000 100,000 Total liabilities 300,000 420,000 Instructions (a) Compute the return on stockholder's equity ratio for both years. (b) Explain how it is possible that net income increased, but the return on common stockhold- ers' equity decreased. (c) Compute the debt to total to total assets ratio for both years, and comment on the implica- tions of this change in the company's solvency. Ex. 243 Manning Company has $1,000,000 in assets and $1,000,000 in stockholders' equity, with 50,000 shares outstanding the entire year. It has a return on assets ratio of 9%. In the past year it had net income of $90,000. On January 1, 2017, it issued $400,000 in debt at 5% and immediately repurchased 25,000 shares for $400,000. Management expected that, had it not issued the debt, it would have again had net income of $90,000. Instructions (a) Determine the Company's net income and earnings per share for 2016 and 2017. (Ignore taxes in your computations.) (b) Compute the Company's return on equity for 2016 and 2017. (c) Compute the company's debt to assets ratio for 2016 and 2017. 11  CHAPTER 11 COMPREHENSIVE PROBLEM FROM CHAPTER 11 Hampton Corporation’s balance sheet at December 31, 2014, is presented below. HAMPTON INC. Balance Sheets December, 31 2014 Cash $24,600 Accounts payable $25,600 Common stock ($ 10 Receivables (net) 45,500 par) 80,000 Allowance for doubtful accounts ‐1,500 Retained earnings 127,400 Supplies 4,400 Land 40,000 Buildings 142,000 Accumulated depreciation ‐ buildings ‐22,000 TOTAL $233,000 $233,000 During 2015, the following transactions occurred. 1. On January 1, 2015, Hampton issued 1,200 shares of $40 par, 7% preferred stock for $49,200. 2. On January 1, 2015, Hampton also issued 900 shares of the $10 par value common stock for $21,000. 3. Hampton performed services for $320,000 on account. 4. On April 1, 2015, Hampton collected fees of $36,000 in advance for services to be performed from April 1, 2015, to March 31, 2016. 5. Hampton collected $276,000 from customers on account. 6. Hampton bought $35,100 of supplies on account. 7. Hampton paid $32,200 on accounts payable. 8. Hampton reacquired 400 shares of its common stock on June 1, 2015, for $28 per share. 12  CHAPTER 11 9. Paid other operating expenses of $188,200. 10. On December 31, 2015, Hampton declared the annual preferred stock dividend and a $1.20 per share dividend on the outstanding common stock, all payable on January 15, 2016. 11. An account receivable of $1,700 which originated in 2014 is written off as uncollectible. Adjustment data: 1. A count of supplies indicates that $5,900 of supplies remain unused at year-end. 2. Recorded revenue earned from item 4 above. 3. The allowance for doubtful accounts should have a balance of $3,500 at year end. 4. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $10,000. 5. The income tax rate is 30%. Instructions (You may want to set up T accounts to determine ending balances.) (a) Prepare journal entries for the transactions listed above and adjusting entries. (b) Prepare an adjusted trial balance at December 31, 2015. (c) Prepare an income statement and a retained earnings statement for the year ending Decem- ber 31, 2015, and a classified balance sheet as of December 31, 2015. 13