ACCOUNTING MC CHAPTER 15
Bonita Industries had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 10000 Net income for the year ended 2018 93500 Market price of stock, 12/31/17 9 Market price of stock, 12/31/18 11 Common stockholders' equity, 12/31/17 1573000 Common stockholders' equity, 12/31/18 1978000 Outstanding shares, 12/31/18 157000 Preferred dividends for the year ended 2018 14300 What is the payout ratio for Bonita Industries for the year ended 2018?
$10000 ÷ ($93500 - $14300) = 12.6%.
Waterway Industries has 152000 shares of $10 par value common stock and 88000 shares of $10 par value, 4%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Waterway wishes to distribute $280000 as dividends, the common stockholders will receive
$1520000 × 4% = $60800 (current year) $1520000 × 6.20%* = 94240 (participating) $155040 *$280000 - $60800 - ($880000 × 4% × 2) = $148800 $148800 = 6.20%. $2400000 155040
Crane Company started business in 2012 by issuing 183000 shares of $19 par common stock for $26 each. In 2017, 25700 of these shares were purchased for $38 per share by Crane Company and held as treasury stock. On June 15, 2018, these 25700 shares were exchanged for a piece of property that had an assessed value of $768000. Crane's stock is actively traded and had a market price of $44 on June 15, 2018. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be
$154200 ($44 - $38) × 25700 = $154200.
Marigold Corp. issued 10200 shares of its $5 par value common stock having a fair value of $20 per share and 15200 shares of its $10 par value preferred stock having a fair value of $25 per share for a lump sum of $514000. How much of the proceeds would be allocated to the common stock?
$179548 (10200 × $20) + (15200 × $25) = $584000; ($204000 ÷ $584000) × $514000 = $179548.
Waterway Industries had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 9900 Net income for the year ended 2018 92700 Market price of stock, 12/31/17 8 Market price of stock, 12/31/18 10 Common stockholders' equity, 12/31/17 1598000 Common stockholders' equity, 12/31/18 1978000 Outstanding shares, 12/31/18 162000 Preferred dividends for the year ended 2018 15900 What is the book value per share for Waterway Industries for the year ended 2018?
$1978000 ÷ 162000 = $12.21.
Sheridan Company has outstanding 603000 shares of $2 par common stock and 119000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $217000 will be distributed as a dividend in the current year, how much will the common stockholders receive?
$217000 - (119000 × $5 × 0.06 × 3) = $109900.
Crane Company has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2017, the first year of the corporation's existence: Sold 19000 shares of common stock for $12.50 per share. Issued 19000 shares of common stock in exchange for a patent valued at $285000. At the end of the Crane's first year, total paid-in capital amounted to
$522500. (19000 × $12.50) + $285000 = $522500.
Presented below is information related to Marigold Corp.: Common Stock, $1 par $3600000 Paid-in Capital in Excess of Par―Common Stock 560000 Preferred 8 1/2% Stock, $50 par 1810000 Paid-in Capital in Excess of Par―Preferred Stock 386000 Retained Earnings 1440000 Treasury Common Stock (at cost) 147000 The total stockholders' equity of Marigold Corp. is
$7649000. cs $3600000 + pic-ps$386000 + pic-cs$560000 + ps$1810000 + retained$1440000 - tcs$147000 = $7649000.
The stockholders' equity section of Sunland Company as of December 31, 2017, was as follows: Common stock, par value $2; authorized 20300 shares; issued and outstanding 10150 shares $ 20300 Paid-in capital in excess of par 35000 Retained earnings 84000 $139300 On March 1, 2018, the board of directors declared a 15% stock dividend, and accordingly 1430 additional shares were issued. On March 1, 2018, the fair value of the stock was $6 per share. For the two months ended February 28, 2018, Sunland sustained a net loss of $15400. What amount should Sunland report as retained earnings as of March 1, 2015?
$84000 - $15400 - (1430 × $6) = $60020.
An analysis of stockholders' equity of Sheffield Corp. as of January 1, 2018, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 92000 shares $1840000 Paid-in capital in excess of par 920000 Retained earnings 768000 Total $3528000 Sheffield uses the cost method of accounting for treasury stock and during 2018 entered into the following transactions: Acquired 2540 shares of its stock for $71120. Sold 1970 treasury shares at $35 per share. Sold the remaining treasury shares at $19 per share. Assuming no other equity transactions occurred during 2018, what should Sheffield report at December 31, 2018, as total additional paid-in capital?
$928660 $920000 + (1970 × $7) - (570 × $9) = $928660.
Sheffield Corp. owned 15100 shares of Pharoah Company. These shares were purchased in 2014 for $105700. On November 15, 2018, Sheffield declared a property dividend of one share of Pharoah for every ten shares of Sheffield held by a stockholder. On that date, when the market price of Pharoah was $29 per share, there were 105700 shares of Sheffield outstanding. What gain and net reduction in retained earnings would result from this property dividend?
($105700 ÷ 10) × $29 = $306530 [$29 - ($105700 ÷ 15100)] × 10570 = $232540 $306530 - $232540 = $73990.
Crane Company had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $4500 Net income for the year ended 2018 96000 Market price of stock, 12/31/17 8 Market price of stock, 12/31/18 10 Common stockholders' equity, 12/31/17 990000 Common stockholders' equity, 12/31/18 1190000 Outstanding shares, 12/31/18 99000 Preferred dividends for the year ended 2018 14000 What is the rate of return on common stock equity for Crane Company for the year ended 2018?
($96000 - $14000) ÷ [($990000 + $1190000)÷2] = 7.5%.
Sheffield Corp. has 501000 shares of $10 par value common stock outstanding. During the year Sheffield declared a 13% stock dividend when the market price of the stock was $35 per share. Three months later Sheffield declared a $0.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by
(501000 × 0.13 × $35) + ($501000 × 1.13 × $0.50) = $2562615.
On June 30, 2018, when Marigold Corp.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 64000 shares issued) $3200000 Premium on capital stock 640000 Retained earnings 4120000 If a 100% stock dividend were declared and distributed, capital stock would be
(64000 × $50) + $3200000 = $6400000.
Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset.
1
Sheffield Corp. declared a $231000 cash dividend. It currently has 11200 shares of 4%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Sheffield distribute to the common stockholders?
11200 × $100 × 0.04 = $44800 $231000 - ($44800 × 2) = $141400.
Sheridan Company, has 15800 shares of 4%, $100 par value, cumulative preferred stock and 60000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $113000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018?
15800 × $100 × .04 = $63200 ($113000 × 2) - ($63200 × 3) = $36400.
Sunland Company, has 4700 shares of 5%, $50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31, 2018, and December 31, 2017. The board of directors declared and paid an $8500 dividend in 2017. In 2018, $43100 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018?
4700 × $50 × 0.05 = $11750 ($11750 - $8500) + $11750 = $15000.
Vaughn Manufacturing has 568000 shares of $10 par value common stock outstanding. During the year, Vaughn declared a 16% stock dividend when the market price of the stock was $28 per share. Four months later Vaughn declared a $0.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by
568000 × 0.16 × $28 = $2544640 $2544640 + (568000 × 1.16 × $0.50) = $2874080.
Sheridan Company has outstanding 400000 shares of $2 par common stock and 120000 shares of no-par 6% preferred stock with a stated value of $5. Dividends have been paid in every year except the past two years and the current year. Assuming that $240000 will be distributed, and the preferred stock is cumulative and participating, how much will the common stockholders receive?
6% × $800000 = $48000 (current year) 6.00%* × $800000 = 48000 (participating) $96000 *$600000 × 6% × 3 = $108000 (preferred dividends) $800000 × 6% = 48000 (common current dividends) $156000 $240000 - $156000 = 6.00%. $800000 + $600000
On January 1, 2018, Coronado Industries had 111000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 11600 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $13, the corporation declared a 16% stock dividend to be issued to stockholders of record on December 16, 2018. What was the impact of the 16% stock dividend on the balance of the retained earnings account?
99400 × 0.16 × $13 = $206752. decrease.
A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to
A paid-in capital account.
Which of the following best describes a possible result of treasury stock transactions by a corporation?
May decrease but not increase retained earnings
Which of the following features of preferred stock makes it more like a debt than an equity instrument?
Redeemable
Which of the following statements about property dividends is not true?
The accounting for a property dividend should be based on the carrying value (book value) of the non monetary assets transferred.
Oriole Company acquired 20400 shares of its own common stock at $21 per share on February 5, 2017, and sold 10200 of these shares at $28 per share on August 9, 2018. The fair value of Oriole's common stock was $25 per share at December 31, 2017, and $26 per share at December 31, 2018. The cost method is used to record treasury stock transactions. What account(s) should Oriole credit in 2018 to record the sale of 10200 shares?
Treasury Stock for $214200 and Paid-in Capital from Treasury Stock for $71400. 10200 × $21 = $214200 10200 × $7 = $71400.
On September 1, 2017, Coronado Industries reacquired 31800 shares of its $15 par value common stock for $20 per share. Coronado uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit
Treasury Stock for $636000. 31800 × $20 = $636000.
When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?
Treasury stock for the purchase price
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as
a footnote
Oriole Company purchased its own par value stock on January 1, 2017 for $19200 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $11700. The $7500 difference between the cost and sales price should be recorded as a deduction from
additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?
authorized shares
Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders
bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called
book value per share
A primary source of stockholders' equity is
both income retained by the corporation and contributions by stockholders.
The payout ratio can be calculated by dividing
cash dividends by net income less preferred dividends
The residual interest in a corporation belongs to the
common stockholders
Presented below is information related to Bonita Industries: Common Stock, $1 par $3470000 Paid-in Capital in Excess of Par―Common Stock 558000 Preferred 8 1/2% Stock, $50 par 2040000 Paid-in Capital in Excess of Par―Preferred Stock 408000 Retained Earnings 1560000 Treasury Common Stock (at cost) 150000 The total paid-in capital (cash collected) related to the common stock is
cs$3470000 + pic-cs$558000 = $4028000.
An entry is not made on the
date of record
What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share Retained Earnings
decrease. no effect
In January 2017, Bonita Industries, a newly formed company, issued 11400 shares of its $8 par common stock for $13 per share. On July 1, 2017, Bonita Industries reacquired 1140 shares of its outstanding stock for $10 per share. The acquisition of these treasury shares
decreased total stockholders' equity.
The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding
decreases retained earnings but does not change total stockholders' equity.
Stockholders' equity is generally classified into two major categories:
earned capital and contributed capital.
The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is
either the proportional method or the incremental method.
The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the
fair value of the shares issued.
According to the FASB, redeemable preferred stock should be
included as a liability.
Treasury shares are shares
issued but not outstanding
A dividend which is a return to stockholders of a portion of their original investments is a
liquidating dividend
The rate of return on common stock equity is calculated by dividing
net income less preferred dividends by average common stockholders' equity.
A corporation was organized in January 2018 with authorized capital of $10 par value common stock. On February 1, 2018, shares were issued at par for cash. On March 1, 2018, the corporation's attorney accepted 7300 shares of common stock in settlement for legal services with a fair value of $94000. Additional paid-in capital would increase on
no. yes.
Cash dividends are paid on the basis of the number of shares
outstanding
"Gains" on sales of treasury stock (using the cost method) should be credited to
paid-in capital from treasury stock.
Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?
par value
When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the
par value of the shares issued.
Concord Corporation owns 3650000 shares of stock in Pharoah Company. On December 31, 2017, Concord distributed these shares of stock as a dividend to its stockholders. This is an example of a
property dividend
At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the
purchase of treasury stock.
The cumulative feature of preferred stock
requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
The preemptive right of a common stockholder is the right to
share proportionately in any new issues of stock of the same class.
Which dividends do not reduce stockholders' equity?
stock
If management wishes to "capitalize" part of the earnings, it may issue a
stock dividend.
A feature common to both stock splits and stock dividends is
that there is no effect on total stockholders' equity.
In a corporate form of business organization, legal capital is best defined as
the par value of all capital stock issued.
Dividends are not paid on
treasury common stock
