Financial & Managerial Accounting 12th Edition By Warren – Test Bank

Ex. 11–1
1st Year 2nd Year 3rd Year 4th Year

a. Total dividend declared……………… $24,000 $81,000 $92,000 $139,000
Preferred dividend (current)……… $24,000 $51,000 * $54,000 $ 54,000
Preferred dividend in arrears……… — 30,000 3,000 —

b. Total preferred dividends…………… $24,000 $81,000 $57,000 $ 54,000 Preferred shares outstanding……… ÷ 30,000 ÷ 30,000 ÷ 30,000 ÷ 30,000
Preferred dividend per share……… 0.80 2.70 1.90 1.80
* $51,000 = $81,000 – $30,000
(a. – b.)……………………………… $ — $ — $ 35,000 $ 85,000
Common shares outstanding……… ÷ 125,000 ÷ 125,000
Common dividend per share………
Ex. 11–2 $ 0.28 $ 0.68
1st Year 2nd Year 3rd Year 4th Year
Dividend for common shares

a. Total dividend declared……………… $36,000 $58,000 $75,000 $124,000
Preferred dividend (current)……… $36,000 $44,000 * $50,000 $ 50,000
Preferred dividend in arrears……… — 14,000 6,000 —

b. Total preferred dividends…………… $36,000 $58,000 $56,000 $ 50,000 Preferred shares outstanding……… ÷ 40,000 ÷ 40,000 ÷ 40,000 ÷ 40,000
Preferred dividend per share……… 1.45 1.40 1.25
* $44,000 = $58,000 – $14,000
(a. – b.)……………………………… $ — $ — $ 19,000 $ 74,000
Common shares outstanding……… ÷ 100,000 ÷ 100,000
Common dividend per share……… $ 0.19 $ 0.74
Dividend for common shares
Ex. 11–3
Feb. 25 Cash (120,000 shares × $40) 4,800,000
Common Stock (120,000 shares × $36) 4,320,000
Paid-In Capital in Excess of Par—
Common Stock [120,000 shares ×
($40 – $36)] 480,000

June 3 Cash (50,000 shares × $9) 450,000
Preferred Stock (50,000 shares × $8) 400,000
Paid-In Capital in Excess of Par—
Preferred Stock [50,000 shares × ($9 – $8)] 50,000
a.
b. $5,250,000 ($4,800,000 + $450,000)
Ex. 11–4
Aug. 5 Cash (500,000 shares × $3) 1,500,000
Common Stock (500,000 shares × $1) 500,000
Paid-In Capital in Excess of Stated Value—
Common Stock [500,000 shares × ($3 – $1)] 1,000,000

Dec. 17 Cash (5,000 shares × $200) 1,000,000
Preferred Stock (5,000 shares × $180) 900,000
Paid-In Capital in Excess of Par—
Preferred Stock [5,000 shares ×
($200 – $180)] 100,000
a.
b. $2,500,000 ($1,500,000 + $1,000,000)
Ex. 11–5
May 10 Land (3,600 shares × $28) 100,800
Common Stock (3,600 shares × $4) 14,400
Paid-In Capital in Excess of Par—
Common Stock [3,600 shares × ($28 – $4)] 86,400
Ex. 11–6
Cash 900,000
Common Stock (45,000 shares × $20) 900,000
a.
Organizational Expenses 8,000
Common Stock (400 shares × $20) 8,000

Cash 1,200,000
Common Stock (60,000 shares × $20) 1,200,000
b.
Land 150,000
Building 600,000
Interest Payable* 1,500
Mortgage Note Payable 450,000
Common Stock (14,925 shares × $20) 298,500
c.
* An acceptable alternative would be to credit Interest Expense.
Ex. 11–7
Oct. 1 Cash (120,000 shares × $31.50) 3,780,000
Common Stock (120,000 shares × $30.00) 3,600,000
Paid-In Capital in Excess of Par—
Common Stock [120,000 shares × ($31.50 –
$30.00)] 180,000

Oct. 1 Buildings 2,380,000
Land 840,000
Preferred Stock (35,000 shares × $80) 2,800,000
Paid-In Capital in Excess of Par—
Preferred Stock [35,000 shares × ($92 – $80)] 420,000

Ex. 11–8
Feb. 1 Cash 4,500,000
Common Stock (180,000 shares × $25) 4,500,000

1 Organizational Expenses 10,000
Common Stock (400 shares × $25) 10,000

Mar. 9 Land 200,000
Buildings 550,000
Equipment 135,000
Common Stock (30,000 shares × $25.00) 750,000
Paid-In Capital in Excess of Par—
Common Stock [30,000 shares × ($29.50 – $25.00)] 135,000

Apr. 13 Cash (8,500 shares × $131) 1,113,500
Preferred Stock (8,500 shares × $120) 1,020,000
Paid-In Capital in Excess of Par—
Preferred Stock [8,500 shares × ($131 – $120)] 93,500

Ex. 11–9
July 10 Cash Dividends 187,500
Cash Dividends Payable 187,500

Aug. 9 No entry required.

Sept. 18 Cash Dividends Payable 187,500
Cash 187,500
Ex. 11–10
Stock Dividends [(300,000 shares × 5%) × $40] 600,000
Stock Dividends Distributable (15,000 shares × $18) 270,000
Paid-In Capital in Excess of Par—
Common Stock [15,000 shares × ($40 – $18)] 330,000

Stock Dividends Distributable 270,000
Common Stock 270,000
a. (1)
(2)
b. (1) $6,900,000 ($5,400,000 + $1,500,000)
(2) $78,000,000
(3) $84,900,000 ($6,900,000 + $78,000,000)
c. (1) $7,500,000 ($5,400,000 + $1,500,000 + $270,000 + $330,000)
(2) $77,400,000 ($78,000,000 – $600,000)
(3) $84,900,000 ($7,500,000 + $77,400,000)
Ex. 11–11
Mar. 4 Treasury Stock (33,000 shares × $84) 2,772,000
Cash 2,772,000

Aug. 27 Cash (25,000 shares × $90) 2,250,000
Treasury Stock (25,000 shares × $84) 2,100,000
Paid-In Capital from Sale of Treasury
Stock [25,000 shares × ($90 – $84)] 150,000

Nov. 11 Cash (8,000 shares × $80) 640,000
Paid-In Capital from Sale of Treasury
Stock [8,000 shares × ($84 – $80)] 32,000
Treasury Stock (8,000 shares × $84) 672,000
a.
b. $118,000 ($150,000 – $32,000) credit
c. Crystal Lake may have purchased the stock to support the market price of the stock, to provide shares for resale to employees, or for reissuance to employees as a bonus according to stock purchase agreements.
Ex. 11–12
Feb. 17 Treasury Stock (50,000 shares × $12) 600,000
Cash 600,000

Apr. 29 Cash (31,000 shares × $15) 465,000
Treasury Stock (31,000 shares × $12) 372,000
Paid-In Capital from Sale of Treasury
Stock [31,000 shares × ($15 – $12)] 93,000

July 31 Cash (12,000 shares × $17) 204,000
Treasury Stock (12,000 shares × $12) 144,000
Paid-In Capital from Sale of Treasury
Stock [12,000 shares × ($17 – $12)] 60,000
a.
b. $153,000 ($93,000 + $60,000) credit
c. $84,000 (7,000 shares × $12) debit
d. The balance in the treasury stock account is reported as a deduction from the total of the paid-in capital and retained earnings.
Ex. 11–13
May 14 Treasury Stock (23,500 shares × $75) 1,762,500
Cash 1,762,500

Sept. 6 Cash (14,000 shares × $81) 1,134,000
Treasury Stock (14,000 shares × $75) 1,050,000
Paid-In Capital from Sale of Treasury
Stock [14,000 shares × ($81 – $75)] 84,000

Nov. 30 Cash (9,500 shares × $72) 684,000
Paid-In Capital from Sale of Treasury
Stock [9,500 shares × ($75 – $72)] 28,500
Treasury Stock (9,500 shares × $75) 712,500
a.
b. $55,500 ($84,000 – $28,500) credit
c. Stockholders’ equity section
d. Biscayne Bay Water Inc. may have purchased the stock to support the market price of the stock, to provide shares for resale to employees, or for reissuance to employees as a bonus according to stock purchase agreements.
Ex. 11–14
Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $120 par
(85,000 shares authorized,
70,000 shares issued) $8,400,000
Excess of issue price over par 210,000 $ 8,610,000
Common stock, no par, $14 stated
value (375,000 shares authorized,
320,000 shares issued) $4,480,000
Excess of issue price over par 480,000 4,960,000
From sale of treasury stock 45,000
Total paid-in capital $13,615,000

Ex. 11–15
Stockholders’ Equity
Paid-in capital:
Common stock, $45 par
(80,000 shares authorized,
68,000 shares issued) $3,060,000
Excess of issue price over par 272,000 $ 3,332,000
From sale of treasury stock 115,000
Total paid-in capital $ 3,447,000
Retained earnings 20,553,000
Total $24,000,000
Deduct treasury stock
(9,000 shares at cost) 324,000
Total stockholders’ equity $23,676,000

Ex. 11–16
Stockholders’ Equity
Paid-in capital:
Preferred 1% stock, $150 par
(50,000 shares authorized,
48,000 shares issued) $ 7,200,000
Excess of issue price over par 384,000 $ 7,584,000
Common stock, $36 par
(300,000 shares authorized,
280,000 shares issued) $10,080,000
Excess of issue price over par 420,000 10,500,000
From sale of treasury stock 340,000
Total paid-in capital $18,424,000
Retained earnings 71,684,000
Total $90,108,000
Deduct treasury common stock
(24,000 shares at cost) 1,008,000
Total stockholders’ equity $89,100,000

Ex. 11–17
ATLAS PUMPS CORPORATION
Retained Earnings Statement
For the Year Ended January 31, 2014
Retained earnings, February 1, 2013 $48,110,000
Net income $9,330,000
Less dividends declared 2,400,000
Increase in retained earnings 6,930,000
Retained earnings, January 31, 2014 $55,040,000

Ex. 11–18
1. Retained earnings is not part of paid-in capital.
2. The cost of treasury stock should be deducted from the total stockholders’ equity.
3. Dividends payable should be included as part of current liabilities and not as part of stockholders’ equity.
4. Common stock should be included as part of paid-in capital.
5. The amount of shares of common stock issued of 825,000 times the par value per share of $20 should be extended as $16,500,000, not $17,655,000. The difference, $1,155,000, probably represents paid-in capital in excess of par.
6. Organizing costs should be expensed as Organizational Expenses when incurred and not included as a part of stockholders’ equity.
One possible corrected Stockholders’ Equity section of the balance sheet using Method 1 of Exhibit 4 is as follows:
Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $80 par (125,000
shares authorized and issued) $10,000,000
Excess of issue price over par 500,000 $ 10,500,000
Common stock, $20 par (1,000,000 shares
authorized, 825,000 shares issued) $16,500,000
Excess of issue price over par 1,155,000 17,655,000
Total paid-in capital $ 28,155,000
Retained earnings* 96,400,000
Total $124,555,000
Deduct treasury stock (75,000 shares at cost) 1,755,000
Total stockholders’ equity $122,800,000

* $96,700,000 – $300,000. Since the organizing costs should have been expensed, the retained earnings should be $300,000 less.
Ex. 11–19
I-CARDS INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2014
Common
Stock,
$40 par Paid-In
Capital in Excess of Par Treasury
Stock Retained Earnings Total
Balance, Jan. 1, 2014 $4,800,000 $ 960,000 — $11,375,000 $17,135,000
Issued 30,000 shares
of common stock 1,200,000 300,000 1,500,000
Purchased 12,000
shares as treasury
stock $(552,000) (552,000)
Net income 3,780,000 3,780,000
Dividends (276,000) (276,000)
Balance, Dec. 31, 2014 $6,000,000 $1,260,000 $(552,000) $14,879,000 $21,587,000

Ex. 11–20
a. 160,000 shares (40,000 × 4)
b. $75 per share ($300 ÷ 4)
Ex. 11–21
Stockholders’
Assets Liabilities Equity

(1) Authorizing and issuing stock
certificates in a stock split
(2) Declaring a stock dividend
(3) Issuing stock certificates for the stock dividend declared in (2)
(4) Declaring a cash dividend
(5) Paying the cash dividend declared in (4) 0
0
0
0
– 0 0
0
+
– 0
0
0
–
0
Ex. 11–22
Jan. 8 No entry required. The stockholders’ ledger
would be revised to record the increased
number of shares held by each stockholder.

Apr. 30 Cash Dividends {[(18,000 shares × $0.75) +
(150,000 shares × $0.28)] = $13,500 + $42,000
= $55,500} 55,500
Cash Dividends Payable 55,500

July 1 Cash Dividends Payable 55,500
Cash 55,500

Oct. 31 Cash Dividends {[(18,000 shares × $0.75) +
(150,000 shares × $0.14)] = $13,500 + $21,000
= $34,500} 34,500
Cash Dividends Payable 34,500

31 Stock Dividends [(150,000 shares × 5% × $52)
= $390,000] 390,000

Net income……………………………………………… $1,105 $1,208 $1,312
Growth as a percent of Year 1 (base year)………… 84% 92% 100%
Net income has declined over the three-year period. Year 2 net income declined 8% (100% – 92%) of Year 1, while Year 3 earnings declined 16% (100% – 84%) of Year 1.
The decline in earnings per share is slightly more than the decline in earnings. Year 2 earnings per share declined 11% (100% – 89%) of Year 1, while Year 3 earnings per share declined 21% (100% – 79%) of Year 1.
Ex. 11–25
a. OfficeMax:
Net Income – Preferred Dividends
Earnings per Share =
Avg. Number of Common Shares Outstanding
$71,155,000 – $2,527,000 Earnings per Share =
84,908,000 shares
= $0.81 per share
Staples:
Net Income – Preferred Dividends
Earnings per Share =
Avg. Number of Common Shares Outstanding
$881,948,000 Earnings per Share =
715,596,000 shares = $1.23 per share
b. Staples’ net income of $881,948,000 is much greater than OfficeMax’s net income of $71,155,0000. This is because Staples is a much larger business than OfficeMax. Staples also has over 8 times more shares of common stock outstanding than does OfficeMax. Regardless of these size differences, however, earnings per share can be used to compare their relative earnings. As shown above, Staples has a better earnings per share of $1.23 than does OfficeMax, which has earnings per share of $0.81.
PROBLEMS
Prob. 11–1A
1. Preferred Dividends Common Dividends

Total Per Per
Year Dividends Total Share Total Share

2009………… $ 18,000 $18,000 $0.45 $ 0 $0.00
2010………… 40,000 40,000 1.00 0 0.00
2011…………
2012…………
2013………… 80,000 120,000
150,000 32,000*
30,000
30,000 0.80
0.75
0.75 48,000
90,000 120,000 0.24
0.45
0.60
2014………… 228,000 30,000 198,000

* $32,000 = (2010 dividends in arrears of $2,000) + (2011 current dividend of $30,000)
2. Average annual dividend for preferred: $0.75 per share ($4.50 ÷ 6) Average annual dividend for common: $0.38 per share ($2.28 ÷ 6)
3. a. 0.60% ($0.75 ÷ $125)
b. 5.0% ($0.38 ÷ $7.60)