CHAPTER 15
Stockholders’ Equity
OPTIONAL ASSIGNMENT CHARACTERISTICS TABLE
Item
Description
BE15-4
BE15-6
BE15-7
BE15-13
BE15-14
Lump-sum sales of stock with preferred stock.
Issuance of stock with payment of stock issue costs.
Treasury stock transactions.
Small stock dividend.
Large stock dividend.
E15-2
E15-5
E15-10
E15-11
E15-12
E15-13
E15-15
E15-17
E15-18
E15-21
Recording the issuance of common and preferred stock.
Lump-sum sales of stock with preferred stock.
Analysis of equity data and equity section preparation.
Analysis of equity transactions on the balance sheet.
Cash dividend and liquidating dividend.
Stock split and stock dividend (a. & b. only).
Dividend entries.
Stockholders’ equity section.
Dividends and stockholders’ equity section.
Preferred dividends (a. & b. only)
P15-1
P15-2
P15-6
P15-8
P15-11
Equity transactions and statement preparation (Req. a. only)
Treasury stock transactions and presentation (Req. a. only)
Treasury stock—cost method (Req. a. only)
Dividends and splits.
Stock and cash dividends (a. & b. only).
CH
15
Optional
Homework,
P ag e |1
BRIEF EXERCISE 15-4
Cash .........................................................................................................................
Preferred Stock (100 X $50) ............................................................................
Paid-in Capital in Excess of Par—Preferred ($8,100 − $5,000) .....................
Common Stock (300 X $10) ............................................................................
Paid-in Capital in Excess of Par—Common ($5,400 − $3,000) ......................
13,500
5,000
3,100
3,000
2,400
[(FV of common (300 X $20) = $6,000) + (FV of preferred (100 X $90) = $9,000) = total FV $15,000]
Allocated to: preferred $13,500 x ($9,000/$15,000) = $8,100; common: $13,500 x ($6,000/$15,000) = $5,400
BRIEF EXERCISE 15-6
Cash ($60,000 – $1,500)............................................................................................
Common Stock (2,000 X $10) .........................................................................
Paid-in Capital in Excess of Par—Common ($60,000 – $20,000 −$1,500) ....
58,500
20,000
38,500
BRIEF EXERCISE 15-7
7/1/12
9/1/12
11/1/12
Treasury Stock (100 X $87) ...............................................................
Cash ........................................................................................
8,700
Cash (60 X $90) .................................................................................
Treasury Stock (60 X $87) .......................................................
Paid-in Capital--Treasury Stock...............................................
5,400
Cash (40 X $83) .................................................................................
Paid-in Capital--Treasury Stock .........................................................
Treasury Stock (40 X $87) .......................................................
3,320
160
8,700
5,220
180
3,480
BRIEF EXERCISE 15-13
Declaration Date.
Retained Earnings [(400,000 x 5%) = 20,000 x $65] ...............................................
Common Stock Dividend Distributable (20,000 x $10) ..............................
Paid-in Capital in Excess of Par—Common................................................
Distribution Date.
Common Stock Dividend Distributable .....................................................................
Common Stock ............................................................................................
1,300,000
200,000
1,100,000
200,000
200,000
BRIEF EXERCISE 15-14
Declaration Date.
Retained Earnings ....................................................................................................
Common Stock Dividend Distributable (400,000 X $10) .............................
4,000,000
Distribution Date.
Common Stock Dividend Distributable .....................................................................
Common Stock ............................................................................................
4,000,000
4,000,000
4,000,000
CH
15
Optional
Homework,
P ag e |2
EXERCISE 15-2
Jan.
Mar.
April
May
Aug.
Sept.
Nov.
10
1
1
1
1
1
1
Cash (80,000 X $5) .......................................................................
Common Stock (80,000 X $2) ..............................................
Paid-in Capital in Excess of Stated Value—Common ........
400,000
Cash (5,000 X $108) .....................................................................
Preferred Stock (5,000 X $50) .............................................
Paid-in Capital in Excess of Par Value—Preferred ..............
540,000
Land ..............................................................................................
Common Stock (24,000 X $2) ..............................................
Paid-in Capital in Excess of Stated Value—Common .........
80,000
Cash (80,000 X $7) .......................................................................
Common Stock (80,000 X $2) ..............................................
Paid-in Capital in Excess of Stated Value—Common .........
560,000
Organization Expense ...................................................................
Common Stock (10,000 X $2) ..............................................
Paid-in Capital in Excess of Stated Value—Common .........
50,000
Cash (10,000 X $9) .......................................................................
Common Stock (10,000 X $2) ..............................................
Paid-in Capital in Excess of Stated Value—Common .........
90,000
Cash (1,000 X $112) .....................................................................
Preferred Stock (1,000 X $50) .............................................
Paid-in Capital in Excess of Par Value—Preferred ..............
112,000
160,000
240,000
250,000
290,000
48,000
32,000
160,000
400,000
20,000
30,000
20,000
70,000
50,000
62,000
EXERCISE 15-5
(a)
Fair value of Common (500 X $168) ..............................................................................
Fair value of Preferred (100 X $210) ..............................................................................
$ 84,000
21,000
$105,000
Allocated to Common: $84,000/$105,000 X $100,000 = $ 80,000
Allocated to Preferred: $21,000/$105,000 X $100,000 = $ 20,000
Cash ............................................................................................................
Common Stock (500 X $10) ...............................................................
Paid-in Capital in Excess of Par—Common ($80,000 – $5,000) .......
Preferred Stock (100 X $100) .............................................................
Paid-in Capital in Excess of Par—Preferred ($20,000 – $10,000) .....
(b)
100,000
5,000
75,000
10,000
10,000
Lump-sum receipt
Allocated to common (500 X $170)
Balance allocated to preferred
Cash ............................................................................................................
Common Stock ...................................................................................
Paid-in Capital in Excess of Par—Common ($85,000 – $5,000) .......
Preferred Stock ...................................................................................
Paid-in Capital in Excess of Par—Preferred ($15,000 – $10,000) .....
$100,000
85,000
$ 15,000
100,000
5,000
80,000
10,000
5,000
CH
15
Optional
Homework,
P ag e |3
EXERCISE 15-10
(a)
(1)
The par value is $2.50 ($545 / 218) or ($540 / 216).
(2)
The cost per share of treasury stock at December 31, 2013 was $42 per share ($1,428 / 34)
compared to the cost at December 31, 2012 of $34 per share ($918 / 27).
Stockholders’ equity (in millions of dollars and shares)
Paid-in capital:
Common stock, $2.50 par value, 500 shares authorized,
218 shares issued, and 184 shares outstanding
Additional paid-in capital .....................................................................................
Total paid-in capital ..................................................................................
Retained earnings..........................................................................................................
Treasury stock (at cost; 34 shares) ...............................................................................
Total stockholders’ equity ........................................................................
(b)
$ 545
891
1,436
7,167
(1,428)
$ 7,175
EXERCISE 15-11
Item
1.
2.
3.
4.
5.
6.
7.
8.
9.
Assets
I
NE
NE
NE
D
D
NE
NE
NE
Liabilities
NE
NE
I
NE
NE
D
I
NE
NE
Stockholders’
Equity
I
NE
D
NE
D
NE
D
NE
NE
Paid-in
Capital
NE
NE
NE
NE
NE
NE
NE
I
NE
Retained
Earnings
I
NE
D
NE
D
NE
D
D
NE
Net Income
I
NE
NE
NE
D
NE
D
NE
NE
EXERCISE 15-12
(a)
(b)
6/1
Retained Earnings (10,000,000 x $.60) ..................................................................
6,000,000
Cash Dividends Payable .............................................................................
6/14
No entry on date of record.
6/30
Cash Dividends Payable .........................................................................................
6,000,000
Cash ............................................................................................................
6,000,000
6,000,000
If this were a liquidating dividend, the debit entry on the date of declaration would be to Additional Paid-in
Capital rather than Retained Earnings.
EXERCISE 15-13 (a & b only)
(a)
Memo entry: The Board of Directors declared a 2-for-1 common stock split, resulting in 10 million
common shares issued and outstanding (5 million x 2) with a par value of $5 per share ($10 / 2).
(b)
Retained Earnings [(5,000,000 x 100%) x $10 par] .................................................
50,000,000
Common Stock Dividend Distributable .............................................................
50,000,000
Common Stock Dividend Distributable ....................................................................
50,000,000
Common Stock .................................................................................................
50,000,000
CH
15
Optional
Homework,
P ag e |4
EXERCISE 15-15
(a)
Declaration Date.
Retained Earnings (60,000* shares X 5% = 3,000 X $39) ......................................
117,000
Common Stock Dividend Distributable (3,000 x $10) ................................
Paid-in Capital in Excess of Par—Common ...............................................
* ($600,000 / $10 = 60,000 shares outstanding)
Distribution Date.
Common Stock Dividend Distributable ....................................................................
30,000
Common Stock ...........................................................................................
30,000
87,000
30,000
(b)
Memo entry: 5-for-1 common stock split, resulting in 300,000 shares outstanding (60,000 X 5) with a par
value of $2 per share ($10 / 5).
(c)
January 5, 2013
Debt Investments ($125,000 − $90,000) .................................................................
35,000
Unrealized Holding Gain - Income ..............................................................
35,000
Retained Earnings ...................................................................................................
125,000
Property Dividends Payable........................................................................
125,000
January 25, 2013
Property Dividends Payable ....................................................................................
125,000
Debt Investments ........................................................................................
125,000
EXERCISE 15-17
Teller Corporation
Balance Sheet (partial)
December 31, 2012
STOCKHOLDERS’ EQUITY
Paid-in Capital:
Capital stock:
Preferred stock, $4 cumulative, $50 par value; 60,000 shares
authorized; 10,000 shares issued and outstanding ..............................
Common stock, $1 par value; 600,000 shares authorized;
200,000 shares issued, and 190,000 shares outstanding ....................
Additional paid-in capital:
Paid-in capital in excess of par value--common.......................................
Paid-in capital, treasury stock ..................................................................
Total paid-in capital .....................................................................
Retained earnings ...................................................................................................
Treasury stock (at cost; 10,000 common shares) ..................................................
Total stockholders’ equity .........................................................................
$ 500,000
200,000
1,000,000
160,000
1,860,000
201,000
(170,000)
$1,891,000
EXERCISE 15-18
(a)
1.
2.
3.
Cash Dividends Payable [(2,000 X $8) + (20,000 x $2)] ..............................................
56,000
Cash ............................................................................................................
56,000
Treasury Stock (2,700 X $40) ................................................................................
108,000
Cash ............................................................................................................
108,000
Land.........................................................................................................................
30,000
Treasury Stock (700 X $40) ........................................................................
Paid-in Capital--Treasury Stock ..................................................................
28,000
2,000
CH
15
Optional
Homework,
P ag e |5
EXERCISE 15-18 continued
4.
5.
6.
7.
(b)
Cash (500 X $105) ..................................................................................................
52,500
Preferred Stock (500 X $100) .....................................................................
Paid-in Capital in Excess of Par—Preferred ...............................................
Retained Earnings (1,800* X $45) ..........................................................................
81,000
Common Stock Dividend Distributable (1,800 X $5) .................................
Paid-in Capital in Excess of Par—Common ...............................................
*[20,000 shares issued – 2,000 shares T/S (2,700 – 700) =
18,000 shares outstanding X 10%]
Common Stock Dividend Distributable....................................................................
9,000
Common Stock ...........................................................................................
Retained Earnings (P/S $20,000 + C/S $39,600) ...................................................
59,600
Cash Dividends Payable .............................................................................
[(P/S = 2,500 x $8); (C/S = [(18,000 + 1,800) x $2)]
50,000
2,500
9,000
72,000
9,000
59,600
ELIZABETH COMPANY
Balance Sheet (partial)
December 31, 2012
STOCKHOLDERS’ EQUITY
Paid-in Capital:
Capital stock:
Preferred stock, 8%, $100 par, 10,000 shares authorized,
2,500 shares issued and outstanding ......................................................
Common stock, $5 par, 100,000 shares authorized,
21,800 shares issued, 19,800 shares outstanding ..................................
Additional paid-in capital:
Paid-in capital in excess of par ..................................................................
Paid-in capital, treasury stock ....................................................................
Total paid-in capital ............................................................................................
Retained earnings ......................................................................................................
Less: Treasury stock (at cost; 2,000 common shares) .....................................................
Total stockholders’ equity .............................................................................................
$250,000
109,000
199,500
2,000
560,500
639,400
(80,000)
$1,119,900
Computations:
Preferred stock: $200,000 + $50,000 = $250,000
Common stock: $100,000 + $ 9,000 = $109,000
Paid-in capital in excess of par (can’t split between P/S & C/S): $125,000 + $2,500 + $72,000 = $199,500
Paid-in capital, treasury stock: $2,000
Retained earnings: $450,000 – $81,000 – $59,600 + $330,000 = $639,400
Treasury stock: $108,000 – $28,000 = $80,000
EXERCISE 15-21 (a. and b. only)
(a)
Preferred stock is noncumulative, nonparticipating:
Preferred = [($100 X 6% = $6 x 2,000] = $12,000
Common = ($70,000 – $12,000) = $58,000
(b)
Preferred stock is cumulative, nonparticipating:
Preferred = ($12,000 x 3 years) = $36,000
Common = ($70,000 – $36,000) = $34,000
CH
15
Optional
Homework,
P ag e |6
PROBLEM 15-1 (Req. a. only)
Jan. 11
Feb. 1
Jul. 29
Cash (20,000 X $16) ................................................................................
Common Stock (20,000 X $10) .........................................................
Paid-in Capital in Excess of Par—Common .......................................
320,000
Equipment .................................................................................................
Buildings ....................................................................................................
Land ...........................................................................................................
Preferred Stock (4,000 X $100) ..........................................................
Paid-in Capital in Excess of Par—Preferred ......................................
50,000
160,000
270,000
Treasury Stock (1,800 X $17) ...................................................................
Cash ...................................................................................................
30,600
Aug. 10 Cash (1,800 X $14) ...................................................................................
Retained Earnings ...................................................................................
Treasury Stock (1,800 X $17) .............................................................
200,000
120,000
400,000
80,000
30,600
25,200
5,400*
30,600
*(The debit is made to Retained Earnings because no Paid-in Capital from Treasury Stock exists.)
Dec. 31
Retained Earnings ($5,000 + $32,000) ....................................................
Cash Dividends Payable ....................................................................
37,000*
37,000
* Common dividend = (20,000 X $.25) = $5,000; Preferred dividend = (4,000 X $100 X 8%) = $32,000
Dec. 31
Income Summary ....................................................................................
Retained Earnings ..............................................................................
175,700
175,700
PROBLEM 15-2 (Req. a. only)
(a)
Feb.
Mar.
1
1
Mar. 18
Apr. 22
Treasury Stock (2,000 x $19) ..............................................
Cash .......................................................................
38,000
Cash (800 x $17) .................................................................
Retained Earnings (800 x $2) .............................................
Treasury Stock (800 x $19) ....................................
13,600
1,600
Cash (500 x $14) .................................................................
Retained Earnings (500 x $5) .............................................
Treasury Stock (500 x $19) ....................................
7,000
2,500
Cash (600 x $20) .................................................................
Treasury Stock (600 x $19) ....................................
Paid-in Capital, Treasury Stock..............................
12,000
38,000
15,200
9,500
11,400
600
CH
15
Optional
Homework,
P ag e |7
PROBLEM 15-6 (Req. a. only)
1.
2.
3.
4.
5.
6.
Treasury Stock (280 X $97) ...............................................................................
Cash .........................................................................................................
27,160
Retained Earnings .............................................................................................
Cash Dividends Payable [(4,800 – 280) X $20] .......................................
90,400
Cash Dividends Payable ....................................................................................
Cash ........................................................................................................
90,400
Cash (280 X $102) .............................................................................................
Treasury Stock (280 X $97) .....................................................................
Paid-in Capital, Treasury Stock (280 X $5) ......................................... ......
28,560
Treasury Stock (500 X $105) .............................................................................
Cash ........................................................................................................
52,500
Cash (350 X $96) ...............................................................................................
Paid-in Capital, Treasury Stock ..........................................................................
Retained Earnings ..............................................................................................
Treasury Stock (350 X $105) ...................................................................
33,600
1,400
1,750
27,160
90,400
90,400
27,160
1,400
52,500
36,750
PROBLEM 15-8
Note: # shares issued (& outstanding since there is no treasury stock) = $20,000 / 5 = 4,000
NE = no effect
(a)
(b)
(c)
(d)
(e)
(1)
(2)
(3)
(4)
(5)
(6)
Total Assets
− $2,000 (1)
NE
NE
− $12,000 (6)
NE
Common stock
NE
+ $2,000 (2)
+ $6,000 (5)
NE
NE
PIC in Excess of Par
NE
+ $3,600 (3)
NE
NE
NE
Retained Earnings
− $2,000 (1)
− $5,600 (4)
− $6,000 (5)
− $12,000 (6)
NE
Total Stkhldrs’ Equity
− $2,000 (1)
NE
NE
− $12,000 (6)
NE
(4,000 X $.50)
[(4,000 X 10%) = 400 X $5]
[(400 X $14) – $2,000]
(400 x $14))
[(4,000 X 30%) = 1,200 X $5]
[(4,000 / 2 = 2,000 X $6)]; or + from $8,000 gain (2,000 x $4) − $20,000 dividend (2,000 x $10)
PROBLEM 15-11 (a & b only)
(a) May 5
Retained Earnings (3,000,000 x $.60) ...........................................
Cash Dividends Payable ........................................................
1,800,000
Jun. 30 Cash Dividends Payable ...............................................................
Cash .......................................................................................
1,800,000
(b) Nov. 30 Retained Earnings [(3,000,000 x 6%) = 180,000 x $34] ..............
Common Stock Dividend Distributable (180,000 x $10) .......
Paid-in Capital in Excess of Par--Common ..........................
6,120,000
Dec. 31 Common Stock Dividend Distributable ........................................
Common Stock .....................................................................
1,800,000
1,800,000
1,800,000
1,800,000
4,320,000
1,800,000