Last revised Jan 2013
Chapter 13
Organization and Operation of Corporations
QUICK STUDY SOLUTIONS
Quick Study 13-1 (10 minutes)
a and d
Quick Study 13-2 (10 minutes)
LUDWIG LTD.
Income Statement
For Year Ended October 31, 2014
Sales .........................................................................
Cost of goods sold ..................................................
Gross profit ..............................................................
Operating expenses ................................................
Income from operations..........................................
Other revenues and expenses:
Gain on sale of plant and equip. ........................
$ 4,000
Interest expense ..................................................
(6,200)
Income before tax ....................................................
Income tax expense ................................................
Net income ...............................................................
$ 982,000
420,000
$ 562,000
162,000
$ 400,000
(2,200)
$ 397,800
99,450*
$ 298,350
*Calculated as: 397,800 × .25 = 99,450
Quick Study 13-3 (5 minutes)
X
CC
X
RE
Cash
Common shares
Common dividend payable
Deficit
CC
RE
X
CC
Preferred shares
Retained earnings
Preferred dividend payable
Preferred shares,
$5 non-cumulative
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
1
Last revised Jan 2013
Quick Study 13-4 (20 minutes)
Transaction
FORM OF BUSINESS ORGANIZATION
Sole Proprietorship
Corporation
Jan. 1, 2014:
The owner(s) invested $10,000
into the new business
Cash ................................... 10,000
Cash .............. ............ 10,000
Ian Smith, Capital .........
10,000
Common Shares ...
10,000
During 2014:
Revenues of $50,000 were
earned; all cash
During 2014:
Expenses of $30,000 were
incurred; all cash
Dec. 15, 2014:
$15,000 cash was distributed to
the owner(s)
Dec. 31, 2014, Year End:
All temporary accounts were
closed
Cash ................................... 50,000
Cash ........................... 50,000
Revenues ......................
50,000
Revenues ..............
50,000
Expenses ........................... 30,000
Expenses ................... 30,000
Cash ..............................
30,000
Cash .......................
30,000
Ian Smith, Withdrawals… 15,000
Cash Dividends ......... 15,000
Cash ..............................
15,000 (or R/E)
Cash .......................
15,000
Revenues .......................... 50,000
Revenues ................... 50,000
Income Summary .........
50,000
Income Summary….
50,000
Income Summary ............. 30,000
Income Summary ...... 30,000
Expenses ......................
30,000
Expenses ...............
30,000
Income Summary ............. 20,000
Income Summary ...... 20,000
Ian Smith, Capital .........
20,000
Retained Earnings….
20,000
—Close Revenue account
—Close Expense account
—Close Income Summary
account to appropriate equity
account(s)
—Close Withdrawal/Cash
Dividends Declared account
Equity section on the balance
sheet at December 31, 2014
after the first year of
operations.
Ian Smith, Capital ............. 15,000
Retained Earnings .... 15,000
Ian Smith, Withdrawals…
15,000
Cash Dividends ...
15,000
No entry if debit Retained Earnings
used above.
Vision Consulting
Partial Balance Sheet
December 31, 2014
Equity
Ian Smith, capital ...... $15,000
Vision Consulting Inc.
Partial Balance Sheet
December 31, 2014
Equity
Common shares ................... $ 10,000
Retained earnings ................ 5,000
Total equity ................................. $15,000
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
2
Last revised Jan 2013
Quick Study 13-5 (10 minutes)
$48,000 + $146,000 – $47,000 – $15,000 = $132,000
OR
Retained Earnings
48,000
Bal. Dec. 31/14
Dividends, 2015
Net loss, 2016
146,000
Net income, 2015
132,000
Bal. Dec. 31/16
47,000
15,000
Quick Study 13-6 (5 minutes)
1. $300,000 – $120,000 + $50,000 = $230,000
2. Net income
3. Dividends
Quick Study 13-7 (10 minutes)
Fisher Inc.
Statement of Changes in Equity
For Year Ended December 31, 2015
Balance, January 1
Issuance of common shares
Net income
Dividends
Balance, December 31
Common
Shares
$ 750,000
125,000
$ 875,000
Retained
Earnings
$(28,000)
148,000
(40,000)
$ 80,000
Total Equity
$ 722,000
125,000
148,000
(40,000)
$ 955,000
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
3
Last revised Jan 2013
Quick Study 13-8 (10 minutes)
Feb. 1
Feb. 12
Cash ......................................................................
Common shares .........................................
Issued shares for cash.
252,440
Cash ......................................................................
Common shares .........................................
Issued shares for cash; 47,000 x $7.25.
340,750
252,440
340,750
The average issue price is $7.02 calculated as:
($252,440 + $340,750) ÷ (37,500 + 47,000).
Quick Study 13-9 (10 minutes)
a.
Sold common shares for cash.
b.
Issued common shares to pay organization costs.
c.
Issued common shares for inventory and machinery, and assumed a note payable.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
4
Last revised Jan 2013
Quick Study 13-10 (10 minutes)
a.
2014
Oct. 3 Cash ............................................................
Preferred Shares ...................................
To record issuance of preferred shares;
4,000 × $15 = 60,000.
60,000
60,000
Nov. 19 Land.............................................................
Preferred Shares ...................................
To record issuance of 3,400 preferred
shares in exchange for land.
52,480
52,480
b. (60,000 + 52,480)/(4,000 + 3,400) = $15.20 per preferred share.
Quick Study 13-11 (10 minutes)
Apr. 15
June 30
Dec. 31
Cash Dividends .........................................................
Common Dividend Payable ............................
Declared a cash dividend on common
shares.
48,000
Common Dividend Payable ....................................
Cash .................................................................
Paid the cash dividend to common
shareholders.
48,000
Retained Earnings ...................................................
Cash Dividends ................................................
To close the Cash Dividends account.
48,000
48,000
48,000
48,000
OR
Apr. 15
June 30
Dec. 31
Retained Earnings ..............................................
Common Dividend Payable .......................
Declared a cash dividend on common
shares.
48,000
Common Dividend Payable ...............................
Cash ............................................................
Paid the cash dividend to common
shareholders.
48,000
48,000
48,000
No entry required.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
5
Last revised Jan 2013
Quick Study 13-12 (10 minutes)
a. Total dividend . ................................................
To preferred shareholders ........................
Remainder to common shareholders ......
108,000
60,000*
$48,000
*75,000 shares × $0.40 × 2 years = $60,000
b. Total dividend . ................................................
To preferred shareholders ........................
Remainder to common shareholders ......
108,000
30,000*
$78,000
*75,000 shares × $0.40 for current year only = $30,000
Quick Study 13-13 (10 minutes)
a. The preferred shares are entitled to receive $0.50 per share when the board of
directors declares dividends; if dividends are not declared, the undeclared
dividends do not become a liability but go into arrears; arrears mean that the
undeclared dividends must be paid to the preferred shareholders in the future along
with any current dividends before the common shareholders receive dividends.
b. The total amount contributed, or given to the corporation, in exchange for
ownership in the corporation.
c. The corporation is allowed to issue 20,000 shares based on its articles of
incorporation.
d. 150,000 common shares have been sold and are held by shareholders.
e. Accumulated net incomes less any net losses and dividends.
f. An unlimited number of common shares may be issued by the corporation based
on its articles of incorporation.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
6
Last revised Jan 2013
Quick Study 13-14 (20 minutes)
a.
2014
May 31
31
31
31
Revenues ..........................................................................
Income Summary ........................................................
To close revenues to the income summary.
92,000
Income Summary .............................................................
Expenses .....................................................................
To close expenses to the income summary.
58,000
Income Summary .............................................................
Retained Earnings.......................................................
To close the income summary to retained earnings.
34,000
92,000
58,000
Retained Earnings......................................
Cash Dividends .....................................
To close cash dividends to retained earnings.
34,000
3,500
3,500
b.
PETER PUCK INC.
Statement of Changes in Equity
For Year Ended May 31, 2014
Balance, June 1
Issuance of shares
Net income (loss)
Dividends
Balance, May 31
Preferred
Shares
$ 7,000
-0-
$ 7,000
Common
Shares
$ 13,000
-0-
$ 13,000
Retained
Earnings
$ 29,000
34,000
(3,500)
$ 59,500
Total
Equity
$ 49,000
-034,000
(3,500)
$ 79,500
NOTE: Because no shares were issued during the year ended May 31, 2014, the
‘Issuance of shares’ line in the Statement of Changes in Equity could be omitted.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
7
Last revised Jan 2013
Quick Study 13-15 (20 minutes)
a.
2014
Nov. 30 Revenues ........................................................................
Income Summary ......................................................
To close revenues to the income summary.
30
30
30
87,000
87,000
Income Summary ...........................................................
Expenses ...................................................................
To close expenses to the income summary.
96,000
Retained Earnings..........................................................
Income Summary ......................................................
To close the income summary to retained
earnings regarding the loss.
9,000
Retained Earnings..........................................................
Cash Dividends .........................................................
To close cash dividends to retained
earnings.
14,000
96,000
9,000
14,000
b.
MORRIS INC.
Statement of Changes in Equity
For Year Ended November 30, 2014
Balance, December 1
Issuance of shares
Net income (loss)
Dividends
Balance, November 30
Preferred
Shares
$ 10,000
-0-
$ 10,000
Common
Shares
$ 48,000
-0-
$ 48,000
Retained
Earnings
$ 42,000
(9,000)
(14,000)
$ 19,000
Total
Equity
$ 100,000
-0(9,000)
(14,000)
$ 77,000
NOTE: Because no shares were issued during the year ended November 30, 2014, the
‘Issuance of shares’ line in the Statement of Changes in Equity could be omitted.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
8
Last revised Jan 2013
Quick Study 13-16 (20 minutes)
a.
2014
Aug. 31 Revenues ........................................................................
Income Summary ......................................................
To close revenues to the income summary.
76,000
76,000
31 Income Summary ...........................................................
Expenses ...................................................................
To close expenses to the income summary.
94,000
31 Retained Earnings .........................................................
Income Summary ......................................................
To close the income summary to retained
earnings regarding the loss.
18,000
94,000
18,000
b.
VELOR LTD.
Statement of Changes in Equity
For Year Ended August 31, 2014
Balance, September 1
Issuance of shares
Net income (loss)
Dividends
Balance, August 31
Preferred
Shares
$ 10,000
-0-
$ 10,000
Common
Shares
$ 48,000
-0-
$ 48,000
Retained
Earnings/(Deficit)
$ 12,000
(18,000)
-0$ (6,000)
Total
Equity
$ 70,000
-0(18,000)
-0$ 52,000
NOTE: Because no shares were issued and no dividends were declared during the year
ended August 31, 2014, the ‘Issuance of shares’ and ‘Dividends’ lines in the Statement of
Changes in Equity could be omitted.
Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd.
9