U.C. Berkeley
Haas School of Business
Chapter 12
April 28, 2001
Spring 2001
BA 230-B
Finally we reach equity. At last the balance sheet equation is complete. We can all sleep a little easier tonight. (Except for the fact that we have finals next week, but apart from that…).
What do we need to know? (journals for)
-
Issuing common stock, treasury shares.
-
Declaring and paying dividends (cash and stock), Options
-
Issuing and executing warrants and convertible bonds
Solutions to S&W
12.33 (Hutchins Company; transactions to incorporate and run a business.) a. No formal entry is required. b. July 8, Year 1
Cash .............................................................
Common Stock ......... ...........................................
6,000 shares issued at $40 per share.
240,000 c. July 9, Year 1
Accounts Receivable ......... .......................................
Inventories .......... ....................................................
Land .............................................................
Buildings ........... ......................................................
Equipment ........... ....................................................
Common Stock ......... ...........................................
4,000 shares issued at $40 per share.
20,000
30,000
40,000
50,000
20,000 d. July 13, Year 1
Cash .............................................................
Preferred Stock—Par ........ .................................. e. Dec. 31, Year 1
Income Summary .......... ..........................................
Retained Earnings ........ ...................................... f. Jan. 4, Year 2
Retained Earnings ......... .........................................
Dividends Payable on Preferred Stock ... ............
Dividends Payable on Common Stock .... ............
800 X $2 = $1,600; 10,000 X $3 = $30,000.
80,000
75,000
31,600
240,000
160,000
80,000
75,000
1,600
30,000
Prepared by Gavin Cassar [ Owners Equity ] Page 1

U.C. Berkeley
Haas School of Business
Chapter 12
April 28, 2001
Spring 2001
BA 230-B g. Feb. 1, Year 2
Dividends Payable on Preferred Stock .... ...............
Dividends Payable on Common Stock .... ................
Cash ............ ......................................................... h. July 2, Year 2
Retained Earnings ......... .........................................
Dividends Payable on Preferred Stock ... ............
1,600
30,000
1,600
31,600
1,600 i. Aug. 1, Year 2
Dividends Payable on Preferred Stock .... ...............
Cash ............ .........................................................
1,600
1,600
12.34 (Conrad Company; reconstructing transactions involving shareholders' equity.) THIS COULD LOOK LIKE SOMETHING YOU MAY HAVE TO
HAND IN SHORTLY!!! (Just a subtle hint). a. $30,000 par value/$10 per share = 3,000 shares. b. $3,600/180 = $20 per share. c. 300 – 180 = 120 shares. d. If the Additional Paid-in Capital is $15,720, then $15,000 [= 3,000 X ($15 –
$10)] represents contributions in excess of par value on original issue of
3,000 shares. Then, $720 (= $15,720 – $15,000) represents the credit to
Additional Paid-in Capital when it reissued the treasury shares.
The $720 represents 120 shares reissued times the excess of reissue price over acquisition price:
120($X – $20) = $720, or X = $26.
The shares were reissued for $26 each. e. (1) Cash (3,000 X $15) ....... ....................................
Capital Stock ($10 Par Value) ... .................
Additional Paid-in Capital ...... ....................
(2) Treasury Shares ......... .....................................
Cash (300 X $20) ...... ....................................
(3) Cash (120 X $26) ....... .......................................
Treasury Shares (120 X $20) .... ...................
Additional Paid-in Capital ...... ....................
45,000
3,120
6,000
30,000
15,000
6,000
2,400
720
Prepared by Gavin Cassar [ Owners Equity ] Page 2

U.C. Berkeley
Haas School of Business
Chapter 12
April 28, 2001
Spring 2001
BA 230-B
(4) Cash ........... ......................................................
Securities Available for Sale .... ..................
Realized Gain on Sale of Securities
Available for Sale (Income Statement) . ..
(5) Securities Available for Sale...... .....................
Unrealized Holding Gain on Securities
Available for Sale (Balance Sheet,
Component of Other Comprehensive
5,000
1,000
3,000
2,000
Income .......... ............................................. 1,000 f.
Realized gain appears in Income (Earnings) Statement and the
Unrealized Gain appears in Statement of Comprehensive Income or in reconciliation of Accumulated Other Comprehensive Income.
12.22 (Vertovec Corporation; journal entries for employee stock options.) a. December 31, Year 3
No entry.
October 15, Year 5
Cash .............................................................
Common Stock (= 15,000 X $10) ... ......................
Additional Paid-in Capital (= 15,000 X $15) ......
November 30, Year 6
Cash .............................................................
Common Stock (= 5,000 X $10) .... .......................
Additional Paid-in Capital (= 5,000 X $15) ......... b. December 31, Year 3
Compensation Expense ........ ...................................
375,000
125,000
100,000
150,000
225,000
50,000
75,000
100,000 Common Stock Options (= 20,000 X $5) .. ............
October 15, Year 5
Cash .............................................................
Common Stock Options (= 15,000 X $5) ...............
Common Stock (= 15,000 X $10) ... ......................
Additional Paid-in Capital ....... ...........................
November 30, Year 6
Cash .............................................................
Common Stock Options (= 5,000 X $5) .................
Common Stock (= 5,000 X $10) .... .......................
Additional Paid-in Capital ....... ...........................
375,000
75,000
125,000
25,000
150,000
300,000
50,000
100,000
Prepared by Gavin Cassar [ Owners Equity ] Page 3

U.C. Berkeley
Haas School of Business
Chapter 12
April 28, 2001
Spring 2001
BA 230-B
12.23 (Haskins Corporation; journal entries for stock warrants.)
February 26, Year 6
Cash ..................................................................
Common Stock Warrants (= 40,000 X $3) ..............
June 6, Year 7
Cash (= 30,000 X $40) .............................................
Common Stock Warrants (= 30,000 X $3) ..................
Common Stock (= 30,000 X $5) ............................
Additional Paid-in Capital ................................
February 26, Year 8
Common Stock Warrants (= 10,000 X $3) ..................
Additional Paid-in Capital ................................
12.24 (Higgins Corporation; journal entries for convertible bonds.) a. 1/02/Year 1
Cash ..............................................................
Convertible Bonds Payable ...........................
To record the issue of convertible bonds.
1/02/Year 5
Convertible Bonds Payable ................................
Common Stock—$1 Par ...............................
Additional Paid-in Capital ...........................
To record conversion using book value of bonds.
120,000
90,000
30,000
120,000
1,200,000
150,000
1,140,000
30,000
1,000,000
1,000,000
1,000,000
40,000
960,000 b. 1/02/Year 1
Cash ..........................................................
Convertible Bonds Payable ........................
Additional Paid-in Capital ........................
Issue of 10-percent semiannual coupon con- vertible bonds at a time when the firm could issue ordinary 10-percent bonds for $685,140.50 when the market interest rate is 15 percent
1,000,000
685,140.50
314,859.50 compounded semiannually.
Supporting Computations
$50,000 X 12.59441
$1,000,000 X .05542
..................................................... $629,720.50
.................................................... 55,420.00
Issue Price .......................................................... $685,140.50
Also see Table 6 at the back of the book.
Prepared by Gavin Cassar [ Owners Equity ] Page 4

U.C. Berkeley
Haas School of Business
Chapter 12
April 28, 2001
Spring 2001
BA 230-B
12.25 (Huerta Corporation; journal entries for treasury stock transactions.) a. Treasury Stock ......... ...............................................
Cash (= 8,000 X $30) ...... ......................................
240,000 b. Cash (= 3,000 X $32) ....... .........................................
Treasury Stock (= 3,000 X $30) ... ........................
96,000
Additional Paid-in Capital ....... ........................... c. Treasury Stock ......... ...............................................
Cash (= 5,000 X $38) ...... ......................................
190,000 d. Land .............................................................
Treasury Stock [= (5,000 X $30) + (1,000 X
$38)] .......... .......................................................
Additional Paid-in Capital ....... ........................... e. Cash (= 4,000 X $36) ....... .........................................
Additional Paid-in Capital ........ ..............................
Treasury Stock (= 4,000 X $38) ... ........................
200,000
144,000
8,000
240,000
90,000
6,000
190,000
188,000
12,000
152,000
Additional Questions (if required or interested or bored or sleepless or committed or just simply enjoy accounting or want to do very well in the final exam)
12.29
Simple dividend question, like parts of 12.33
12.32
Like 12.33
Only Final Exam Review to go. Good luck with your studies for your other subjects.
And if I don’t see you at the Final Exam Review, I’ll see you around Haas next semester!
Cheers,
Gavin
Prepared by Gavin Cassar [ Owners Equity ] Page 5