ExErcisEs: sEt B - Cengage

Chapter Assignments

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EXERCISES: SET B

LO 1 Advantages and Disadvantages of a Corporation

E1B. CONCEPT Identify whether each of the following characteristics is an advantage (A) or a disadvantage (D) of the corporate form of business:

1. Ease of capital formation 2. Double taxation 3. Separate legal entity 4. Ease of ownership transfer 5. Government regulation

LO 2 Stockholders' Equity

E2B. The accounts and balances that follow are from Little Corporation's records on December 31, 2014.

Preferred Stock, $100 par value, 9 percent cumulative, 10,000 shares authorized, 3,000 shares issued and outstanding Common Stock, $12 par value, 45,000 shares authorized, 15,000 shares issued, and 14,250 shares outstanding Additional Paid-in Capital Retained Earnings Treasury Stock, Common (750 shares, at cost)

$300,000

180,000 97,000 11,500 15,000

Prepare the stockholders' equity section of Little's balance sheet as of December 31, 2014.

LO 2 Characteristics of Common and Preferred Stock

E3B. Indicate whether each of the following characteristics is more closely associated with common stock (C) or preferred stock (P):

1. Often receives dividends at a set rate. 2. Is considered the residual equity of a company. 3. Can be callable. 4. Can be convertible. 5. More likely to have dividends that vary in amount from year to year. 6. Can be entitled to receive dividends not paid in past years. 7. Likely to have full voting rights. 8. Receives assets first in liquidation. 9. Generally receives dividends before other classes of stock.

LO 2 Cash Dividends with Dividends in Arrears

E4B. Mendez Corporation has 10,000 shares of its $100 par value, 7 percent cumulative preferred stock outstanding and 50,000 shares of its $1 par value common stock outstanding. In Mendez's first four years of operation, its board of directors paid the following cash dividends: 2011, none; 2012, $120,000; 2013, $140,000; 2014, $140,000. Determine the dividends per share and total cash dividends paid to the preferred and common stockholders during each of the four years.

LO 2 Cash Dividends on Preferred and Common Stock

E5B. Dime Corporation pays dividends at the end of each year. The dividends that it paid for 2012, 2013, and 2014 were $80,000, $60,000, and $180,000, respectively. Calculate the total amount of dividends Dime paid in each of these years to its common and preferred stockholders under both of the following capital structures: (1) 20,000 shares of $100 par, 6 percent noncumulative preferred stock and 60,000 shares of $10 par common stock; (2) 10,000 shares of $100 par, 7 percent cumulative preferred stock and 60,000 shares of $10 par common stock. Dime had no dividends in arrears at the beginning of 2012.

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Chapter 13: Accounting for Corporations

LO 2, 3 LO 3 LO 3 LO 4 LO 4 LO 5

Stock Entries Using T Accounts; Stockholders' Equity

E6B. Beatle Corporation was organized in 2014. It was authorized to issue 200,000 shares of no-par common stock with a stated value of $5 per share, and 40,000 shares of $100 par value, 6 percent noncumulative preferred stock. On March 1, the company issued 60,000 shares of its common stock for $15 per share and 8,000 shares of its preferred stock for $100 per share.

1. Record the issuance of the stock using T accounts. 2. Prepare the stockholders' equity section of Beatle's balance sheet as it would appear

immediately after the company issued the common and preferred stock.

Issuance of Stock

E7B. Kabila Company is authorized to issue 50,000 shares of common stock. On August 1, the company issued 2,500 shares at $25 per share. Prepare journal entries to record the issuance of stock for cash under each of the following alternatives:

1. The stock has a par value of $25. 2. The stock has a par value of $10. 3. The stock has no par value. 4. The stock has a stated value of $1 per share.

Issuance of Stock for Noncash Assets

E8B. On July 1, 2014, Mac Corporation, a new corporation, issued 20,000 shares of its common stock to finance a corporate headquarters building. The building has a fair market value of $600,000 and a book value of $400,000. Because Mac is a new corporation, it is not possible to establish a market value for its common stock. Prepare journal entries to record the issuance of stock for the building, assuming the following conditions: (1) the par value of the stock is $10 per share; (2) the stock is no-par stock; and (3) the stock has a stated value of $4 per share.

Treasury Stock Transactions

E9B. Record Pasica Corporation's following stock transactions, which represent all the company's treasury stock transactions during 2014, using T accounts:

May 5

17 21 28

Purchased 1,600 shares of its own $2 par value common stock for $40 per share, the current market price. Sold 600 shares of treasury stock purchased on May 5 for $44 per share. Sold 400 shares of treasury stock purchased on May 5 for $40 per share. Sold the remaining 600 shares of treasury stock purchased on May 5 for $38 per share.

Treasury Stock Transactions Including Retirement

E10B. Record Linens Corporation's following stock transactions, which represent all its treasury stock transactions for the year, using T accounts:

June 1

10 20 30

Purchased 2,000 shares of its own $15 par value common stock for $35 per share, the current market price. Sold 500 shares of treasury stock purchased on June 1 for $40 per share. Sold 700 shares of treasury stock purchased on June 1 for $29 per share. Retired the remaining shares purchased on June 1. The original issue price was $21 per share.

Cash Dividends

E11B. Cadbury Corporation secured authorization from the state for 100,000 shares of $10 par value common stock. It has 40,000 shares issued and 35,000 shares outstanding. On June 5, the board of directors declared a $0.25 per share cash dividend to be paid on June 25 to stockholders of record on June 15. Record these events using T accounts.

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Chapter Assignments

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LO 5 Cash Dividends

E12B. Avalon Corporation has 250,000 authorized shares of $1 par value common stock, of which 100,000 are issued, including 10,000 shares of treasury stock. On October 15, the corporation's board of directors declared a cash dividend of $0.50 per share payable on November 15 to stockholders of record on November 1. Record these events using T accounts.

LO 6 Journal Entries: Stock Dividends

E13B. Ames Corporation has 30,000 shares of its $1 par value common stock outstanding. Prepare journal entries to record the following transactions as they relate to the company's common stock:

July 17

31 Aug. 10 Sept. 1

Declared a 10 percent stock dividend on common stock to be distributed on August 10 to stockholders of record on July 31. Market value of the stock was $5 per share on this date. Date of record. Distributed the stock dividend declared on July 17. Declared a $0.50 per share cash dividend on common stock to be paid on September 16 to stockholders of record on September 10.

LO 6 Stock Split

E14B. Illinois Corporation currently has 500,000 shares of $1 par value common stock authorized with 200,000 shares outstanding. The board of directors declared a 2-for-1 split on May 15, 2014, when the market value of the common stock was $2.50 per share. The retained earnings balance on May 15 was $700,000. Additional paid-in capital on this date was $20,000. Prepare the stockholders' equity section of the company's balance sheet before and after the stock split. What entry, if any, would be necessary to record the stock split?

LO 6 Stock Split

E15B. On January 15, 2014, King International's board of directors declared a 3-for-1 stock split of its $12 per value common stock, of which 3,200,000 shares were authorized and 800,000 were issued and outstanding. The market value on that date was $45 per share. On the same date, the balance of additional paid-in capital was $16,000,000, and the balance of retained earnings was $32,000,000. Prepare the stockholders' equity section of King's company's balance sheet before and after the stock split. What entry, if any, is needed to record the stock split?

LO 7 Statement of Stockholders' Equity

E16B. The stockholders' equity section of Tubbs Corporation's balance sheet on December 31, 2014, follows.

Contributed capital: Common stock, $2 par value, 500,000 shares authorized, 400,000 shares issued and outstanding Additional paid-in capital

Total contributed capital Retained earnings Total stockholders' equity

$ 800,000 1,200,000

$2,000,000 4,200,000

$6,200,000

Prepare a statement of stockholders' equity for the year ended December 31, 2015, assuming these transactions occurred in sequence in 2015:

a. Issued 10,000 shares of $100 par value, 9 percent cumulative preferred stock at par after obtaining authorization from the state.

b. Issued 40,000 shares of common stock in connection with the conversion of bonds having a carrying value of $600,000.

c. Declared and issued a 2 percent common stock dividend. The market value on the date of declaration was $14 per share.

(Continued)

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Chapter 13: Accounting for Corporations

d. Purchased 10,000 shares of common stock for the treasury at a cost of $16 per share. e. Earned net income of $460,000. f. Declared and paid the full-year's dividend on preferred stock and a dividend of $0.40

per share on common stock outstanding at the end of the year.

LO 7 Book Value for Preferred and Common Stock

E17B. The stockholders' equity section of Bianca Corporation's balance sheet follows. Assuming one year's dividend in arrears, determine the book value per share for both the preferred and the common stock. (Round to the nearest cent.)

Contributed capital: Preferred stock, $100 per share, callable at $105, 6 percent cumulative, 10,000 shares authorized, 200 shares issued and outstanding Common stock, $5 par value, 100,000 shares authorized, 10,000 shares issued, 9,000 shares outstanding Additional paid-in capital

Total contributed capital Retained earnings Total contributed capital and retained earnings Less treasury stock, common (1,000 shares at cost) Total stockholders' equity

$ 20,000

50,000 28,000 $ 98,000 95,000 $193,000 15,000 $178,000

LO 8 Dividend Yield and Price/Earnings Ratio

E18B. BUSINESS APPLICATION In 2014, Phoenix Corporation earned $8.80 per share and paid a dividend of $4.00 per share. At year-end, the price of its stock was $132 per share. Calculate the dividend yield and the price/earnings ratio. (Round dividend yield to the nearest tenth of a percent.)

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