PE 11–1A
Year 1
Amount distributed ..............................
Preferred dividend (18,000 shares).....
Common dividend (50,000 shares) .....
$72,000
72,000
$
0
Year 2
$125,000
108,000*
$ 17,000
Year 3
$160,000
90,000*
$ 70,000
*($18,000 + $90,000)
Dividends per share:
Preferred stock .............................
Common stock .............................
$4.00
None
$6.00
$0.34
$5.00
$1.40
PE 11–1B
Amount distributed ..............................
Preferred dividend (10,000 shares).....
Common dividend (25,000 shares) .....
Year 1
Year 2
Year 3
$18,000
10,000
$ 8,000
$7,500
7,500
$
0
$35,000
12,500*
$22,500
*($2,500 + $10,000)
Dividends per share:
Preferred stock .............................
Common stock .............................
$1.00
$0.32
$0.75
None
$1.25
$0.90
PE 11–2A
Feb. 23 Cash .....................................................................
Common Stock ..............................................
Paid-In Capital in Excess of Stated Value ...
9,375,000
6,000,000
3,375,000*
*[75,000 shares × ($125 – $80)]
Oct.
Nov.
6 Cash .....................................................................
Preferred Stock ..............................................
(20,000 shares × $50).
1,000,000
4 Cash .....................................................................
Preferred Stock ..............................................
Paid-In Capital in Excess of Par ...................
708,000
*[12,000 shares × ($59 – $50)]
1,000,000
600,000
108,000*
PE 11–2B
Aug.
Sept.
Nov.
7 Cash .....................................................................
Common Stock ..............................................
(300,000 shares × $1.75).
525,000
1 Cash .....................................................................
Preferred Stock ..............................................
(25,000 shares × $40).
1,000,000
2 Cash .....................................................................
Preferred Stock ..............................................
Paid-In Capital in Excess of Par ...................
520,000
525,000
1,000,000
400,000
120,000*
*(10,000 shares × $12)
PE 11–3A
Oct.
15 Cash Dividends ...................................................
Cash Dividends Payable ...............................
115,000
115,000
Nov. 14 No entry required.
Dec. 14 Cash Dividends Payable ....................................
Cash................................................................
115,000
115,000
PE 11–3B
Mar.
3 Cash Dividends ...................................................
Cash Dividends Payable ...............................
Apr.
2 No entry required.
May
2 Cash Dividends Payable ....................................
Cash................................................................
275,000
275,000
275,000
275,000
PE 11–4A
Feb.
8 Stock Dividends (100,000 × 6% × $94) ..............
Stock Dividends Distributable (6,000 × $60)
Paid-In Capital in Excess of Par—
Common Stock ($564,000 – $360,000) .........
564,000
360,000
204,000
Mar. 10 No entry required.
Apr.
11 Stock Dividends Distributable ...........................
Common Stock ..............................................
360,000
360,000
PE 11–4B
July
20 Stock Dividends (250,000 × 3% × $54) ..............
Stock Dividends Distributable (7,500 × $15)
Paid-In Capital in Excess of Par—
Common Stock ($405,000 – $112,500) .........
405,000
112,500
292,500
Aug. 19 No entry required.
Sept. 18 Stock Dividends Distributable ...........................
Common Stock ..............................................
112,500
112,500
PE 11–5A
Mar.
8 Treasury Stock (13,000 × $42) ...........................
Cash................................................................
546,000
16 Cash (9,500 × $50) ..............................................
Treasury Stock (9,500 × $42) ........................
Paid-In Capital from Sale of
Treasury Stock [9,500 × ($50 – $42)] ............
475,000
Aug. 30 Cash (3,500 × $40) ..............................................
Paid-In Capital from Sale of
Treasury Stock [3,500 × ($42 – $40)] .................
Treasury Stock (3,500 × $42) ........................
140,000
May
546,000
399,000
76,000
7,000
147,000
PE 11–5B
Sept.
9 Treasury Stock (9,000 × $24) .............................
Cash................................................................
216,000
7 Cash (4,800 × $29) ..............................................
Treasury Stock (4,800 × $24) ........................
Paid-In Capital from Sale of
Treasury Stock [4,800 × ($29 – $24)] ............
139,200
Dec. 20 Cash (4,200 × $22) ..............................................
Paid-In Capital from Sale of
Treasury Stock [4,200 × ($24 – $22)] .................
Treasury Stock (4,200 × $24) ........................
92,400
Oct.
216,000
115,200
24,000
8,400
100,800
PE 11–6A
Stockholders’ Equity
Paid-in capital:
Common stock, $120 par (50,000 shares
authorized, 40,000 shares issued) .................
Excess of issue price over par ............................
From sale of treasury stock .................................
Total paid-in capital .........................................
Retained earnings ......................................................
Total .......................................................................
Deduct treasury stock (2,500 shares at cost) ..........
Total stockholders’ equity .........................................
$4,800,000
600,000
$ 5,400,000
59,000
$ 5,459,000
7,138,500
$ 12,597,500
287,500
$ 12,310,000
PE 11–6B
Stockholders’ Equity
Paid-in capital:
Common stock, $15 par (200,000 shares
authorized, 160,000 shares issued) ...............
Excess of issue price over par ............................
From sale of treasury stock .................................
Total paid-in capital .........................................
Retained earnings ......................................................
Total .......................................................................
Deduct treasury stock (24,000 shares at cost) ........
Total stockholders’ equity .........................................
$2,400,000
480,000
$2,880,000
100,000
$2,980,000
5,275,000
$8,255,000
336,000
$7,919,000
PE 11–7A
EMMY LEADERS INC.
Retained Earnings Statement
For the Year Ended August 31, 2012
Retained earnings, September 1, 2011.....................
Net income ..................................................................
Less: dividends declared ..........................................
Increase in retained earnings ...................................
Retained earnings, August 31, 2012 .........................
$740,000
$145,000
35,000
110,000
$850,000
PE 11–7B
AUCKLAND CRUISES INC.
Retained Earnings Statement
For the Year Ended April 30, 2012
Retained earnings, May 1, 2011 ........................................
Net income ..........................................................................
Less dividends declared....................................................
Increase in retained earnings ...........................................
Retained earnings, April 30, 2012 .....................................
$3,180,000
$515,000
225,000
290,000
$3,470,000
PE 11–8A
a.
2012: Earning per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
=
$117,000  $18,000
50,000 shares
=
$99,000
= $1.98
50,000 shares
2011: Earning per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
=
$104,000  $18,000
40,000 shares
=
$86,000
= $2.15
40,000 shares
b. The decrease in the earnings per share from $2.15 to $1.98 indicates an unfavorable trend in the company’s profitability.
PE 11–8B
a.
2012: Earning per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
=
$971,000  $35,000
120,000 shares
=
$936,000
= $7.80
120,000 shares
2011: Earning per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
=
$692,000  $35,000
90,000 shares
=
$657,000
= $7.30
90,000 shares
b. The increase in the earnings per share from $7.30 to $7.80 indicates a favorable trend in the company’s profitability.
EXERCISES
Ex. 11–1
1st Year
2nd Year
3rd Year
4th Year
a. Total dividend declared .................
$ 22,500
$ 28,800
$ 40,100
$ 77,000
Preferred dividend (current) ..........
Preferred dividend in arrears ........
$ 22,500
—
$ 27,000*
1,800
$ 27,000
2,700
$ 27,000
—
b. Total preferred dividends ..............
Preferred shares outstanding .......
Preferred dividend per share.........
$ 22,500
÷ 18,000
$
1.25
$ 28,800
÷ 18,000
$
1.60
$ 29,700
÷ 18,000
$
1.65
$ 27,000
÷ 18,000
$
1.50
$ 10,400
÷ 40,000
$
0.26
$ 50,000
÷ 40,000
$
1.25
*$27,000 = 18,000 shares × $75 × 2%
Dividend for common shares
(a. – b.) ............................................
Common shares outstanding ........
Common dividend per share .........
$
—
$
—
Ex. 11–2
1st Year
2nd Year
3rd Year
4th Year
a. Total dividend declared .................
$
7,500
$ 10,500
$ 25,000
$ 60,000
Preferred dividend (current) ..........
Preferred dividend in arrears ........
$
7,500
—
$
$ 10,000*
2,000
$ 10,000
—
$ 12,000
÷ 25,000
$
0.48
$ 10,000
÷ 25,000
$
0.40
$ 13,000
÷ 50,000
$
0.26
$ 50,000
÷ 50,000
$
1.00
b. Total preferred dividends ..............
Preferred shares outstanding .......
Preferred dividend per share.........
$ 7,500
÷ 25,000
$
0.30
8,000
2,500
$ 10,500
÷ 25,000
$
0.42
*$10,000 = 25,000 shares × $40 × 1%
Dividend for common shares
(a. – b.) ............................................
Common shares outstanding ........
Common dividend per share .........
$
—
$
—
Ex. 11–3
a. Jan.
Mar.
14 Cash ..............................................................
Common Stock .......................................
Paid-In Capital in Excess of Par—
Common Stock ..................................
768,000
17 Cash ..............................................................
Preferred Stock .......................................
Paid-In Capital in Excess of Par—
Preferred Stock ..................................
660,000
600,000
168,000
600,000
60,000
b. $1,428,000 ($768,000 + $660,000)
Ex. 11–4
a. July
Nov.
12 Cash ..............................................................
Common Stock .......................................
Paid-In Capital in Excess of
Stated Value .......................................
2,700,000
18 Cash ..............................................................
Preferred Stock .......................................
Paid-In Capital in Excess of Par—
Preferred Stock ..................................
4,000,000
1,200,000
1,500,000
3,600,000
400,000
b. $6,700,000 ($2,700,000 + $4,000,000)
Ex. 11–5
Apr. 15 Land ......................................................................
Common Stock ...............................................
Paid-In Capital in Excess of Par ....................
525,000
350,000
175,000
Ex. 11–6
a.
Cash ................................................................................
Common Stock (20,000 × $50) ................................
1,000,000
b. Organizational Expenses ..............................................
Common Stock (1,000 × $50) ..................................
50,000
Cash ................................................................................
Common Stock (15,000 × $50) ................................
750,000
Land ................................................................................
Building ..........................................................................
Interest Payable* ......................................................
Mortgage Note Payable............................................
Common Stock .........................................................
200,000
500,000
c.
1,000,000
50,000
750,000
2,500
300,000
397,500
*An acceptable alternative would be to credit Interest Expense.
Ex. 11–7
Buildings ...............................................................................
Land.......................................................................................
Preferred Stock ...............................................................
Paid-In Capital in Excess of Par—Preferred Stock ......
910,000
350,000
Cash ......................................................................................
Common Stock................................................................
Paid-In Capital in Excess of Par—Common Stock ......
1,584,000
1,200,000
60,000
1,500,000
84,000
Ex. 11–8
Jan. 30 Cash ......................................................................
Common Stock (300,000 × $20) .....................
6,000,000
31 Organizational Expenses ....................................
Common Stock (750 × $20) ............................
15,000
Feb. 21 Land ......................................................................
Buildings ...............................................................
Equipment.............................................................
Common Stock (32,000 × $20) .......................
Paid-In Capital in Excess of Par—
Common Stock ..........................................
150,000
460,000
90,000
Mar.
2 Cash ......................................................................
Preferred Stock (15,000 × $75).......................
Paid-In Capital in Excess of Par—
Preferred Stock ..........................................
6,000,000
15,000
640,000
60,000
1,162,500
1,125,000
37,500
Ex. 11–9
Apr.
May
1 Cash Dividends ....................................................
Cash Dividends Payable ................................
365,850
365,850
1 No entry required.
June 3 Cash Dividends Payable ......................................
Cash .................................................................
365,850
365,850
Ex. 11–10
a.
(1) Stock Dividends .......................................................
Stock Dividends Distributable (4,200 × $125)...
Paid-In Capital in Excess of Par—
Common Stock ..............................................
*[($17,500,000/$125) × 3%] × $132
554,400*
(2) Stock Dividends Distributable ................................
Common Stock ...................................................
525,000
525,000
29,400
525,000
b. (1) $18,060,000 ($17,500,000 + $560,000)
(2) $75,496,000
(3) $93,556,000 ($18,060,000 + $75,496,000)
c. (1) $18,614,400 ($17,500,000 + $560,000 + $525,000 + $29,400)
(2) $74,941,600 ($75,496,000 – $554,400)
(3) $93,556,000 ($18,614,400 + $74,941,600)
Ex. 11–11
a. Apr. 27
July 13
Oct.
8
Treasury Stock .............................................
Cash .........................................................
900,000
Cash ..............................................................
Treasury Stock (9,000 × $60) .................
Paid-In Capital from Sale of
Treasury Stock ..................................
648,000
Cash ..............................................................
Paid-In Capital from Sale of
Treasury Stock ........................................
Treasury Stock (6,000 × $60) .................
354,000
b. $102,000 ($108,000 – $6,000) credit
900,000
540,000
108,000
6,000
360,000
Ex. 11–11 (Concluded)
c. Deer Creek 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
a. June 19
Aug. 30
Sept. 6
Treasury Stock (24,000 × $64) .....................
Cash .........................................................
1,536,000
Cash (19,000 × $68) ......................................
Treasury Stock (19,000 × $64) ...............
Paid-In Capital from Sale
of Treasury Stock ..............................
1,292,000
Cash (3,000 × $70) ........................................
Treasury Stock (3,000 × $64) .................
Paid-In Capital from Sale
of Treasury Stock ..............................
210,000
1,536,000
1,216,000
76,000
192,000
18,000
b. $94,000 ($76,000 + $18,000) credit
c. $128,000 (2,000 × $64) 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
a. July
Nov.
5
3
Dec. 10
Treasury Stock (12,500 × $80) .....................
Cash .........................................................
1,000,000
Cash (7,000 × $85) ........................................
Treasury Stock (7,000 × $80) .................
Paid-In Capital from Sale of
Treasury Stock ..................................
595,000
Cash (5,500 × $78) ........................................
Paid-In Capital from Sale of
Treasury Stock ........................................
Treasury Stock (5,500 × $80) .................
429,000
b. $24,000 ($35,000 – $11,000) credit
c. Stockholders’ Equity section
1,000,000
560,000
35,000
11,000
440,000
Ex. 11–13 (Concluded)
d. Conyers 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 1% stock, $75 par
(100,000 shares authorized,
60,000 shares issued) ............... $4,500,000
Excess of issue price over par ......
180,000
Common stock, no par, $8 stated
value (500,000 shares authorized, 300,000 shares issued) .... $2,400,000
Excess of issue price over par ......
450,000
From sale of treasury stock ...........
Total paid-in capital ...................
$4,680,000
2,850,000
190,000
$7,720,000
Ex. 11–15
Stockholders’ Equity
Paid-in capital:
Common stock, $90 par
(50,000 shares authorized,
30,000 shares issued) ...............
Excess of issue price over par ......
From sale of treasury stock ...........
Total paid-in capital ...................
Retained earnings ................................
Total .................................................
Deduct treasury stock
(4,000 shares at cost) .....................
Total stockholders’ equity ...................
$2,700,000
120,000
$ 2,820,000
36,000
$ 2,856,000
9,173,000
$12,029,000
352,000
$11,677,000
Ex. 11–16
Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $125 par
(60,000 shares authorized,
40,000 shares issued) ...............
Excess of issue price over par ......
Common stock, $8 par
(500,000 shares authorized,
375,000 shares issued) .............
Excess of issue price over par ......
From sale of treasury stock ...........
Total paid-in capital ...................
Retained earnings ................................
Total .................................................
Deduct treasury common stock
(88,000 shares at cost) ...................
Total stockholders’ equity ...................
$5,000,000
280,000
$3,000,000
525,000
$ 5,280,000
3,525,000
175,000
$ 8,980,000
23,120,000
$32,100,000
792,000
$31,308,000
Ex. 11–17
SANDUSKY CORPORATION
Retained Earnings Statement
For the Year Ended October 31, 2012
Retained earnings, November 1, 2011 ..............................
Net income ..........................................................................
Less dividends declared....................................................
Increase in retained earnings ...........................................
Retained earnings, October 31, 2012 ...............................
$796,750
$215,000
45,000
170,000
$966,750
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 500,000 times the par value
per share of $14 should be extended as $7,000,000, not $7,600,000. The difference, $600,000, probably represents paid-in capital in excess of par.
6. Organizing costs should be expensed when incurred and not included as a
part of stockholders’ equity.
One possible corrected Stockholders’ Equity section of the balance sheet is as
follows:
Stockholders’ Equity
Paid-in capital:
Preferred 1% stock, $200 par
(25,000 shares authorized and issued) .................. $5,000,000
Excess of issue price over par ....................................
75,000
Common stock, $14 par (800,000 shares authorized,
500,000 shares issued) ........................................... $7,000,000
Excess of issue price over par ....................................
600,000
Total paid-in capital .................................................
Retained earnings ..............................................................
Deduct treasury stock (45,000 shares at cost) ................
Total stockholders’ equity .................................................
$ 5,075,000
7,600,000
$ 12,675,000
41,500,000*
$ 54,175,000
648,000
$ 53,527,000
*$41,750,000 – $250,000. Since the organizing costs should have been expensed,
the retained earnings should be $250,000 less.
Ex. 11–19
LIFE’S GREETING CARDS INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2012
Paid-In
Common Capital in
Stock
Excess
Treasury Retained
$50 Par
of Par
Stock
Earnings
Balance, Jan. 1, 2012 ..... $3,000,000
Issued 27,000 shares
of common stock ....... 1,350,000
Purchased 4,500
shares as treasury
stock ...........................
Net income .....................
Dividends .......................
Balance, Dec. 31, 2012 .. $4,350,000
—
$480,000
Total
$5,220,000 $ 8,700,000
324,000
1,674,000
$(216,000)
(216,000)
765,000
765,000
(150,000)
(150,000)
$804,000 $(216,000) $5,835,000 $10,773,000
Ex. 11–20
a. 500,000 shares (100,000 × 5)
b. $40 per share ($200/5)
Ex. 11–21
(1)
(2)
(3)
(4)
(5)
Authorizing and issuing stock
certificates in a stock split
Declaring a stock dividend
Issuing stock certificates for
the stock dividend declared
in (2)
Declaring a cash dividend
Paying the cash dividend
declared in (4)
Stockholders’
Equity
Assets
Liabilities
0
0
0
0
0
0
0
0
0
+
0
–
–
–
0
Ex. 11–22
Feb. 10 No entry required. The stockholders’ ledger would be revised to record
the increased number of shares held by each stockholder.
May
1 Cash Dividends ....................................................
Cash Dividends Payable ................................
116,000*
116,000
*[(40,000 shares × $2) + (300,000 shares
× $0.12)] = $80,000 + $36,000 = $116,000
June 15 Cash Dividends Payable ......................................
Cash .................................................................
116,000
Nov.
104,000*
1 Cash Dividends ....................................................
Cash Dividends Payable ................................
116,000
104,000
*[(40,000 shares × $2) + (300,000 shares
× $0.08)] = $80,000 + $24,000 = $104,000
1 Stock Dividends ...................................................
Stock Dividends Distributable (6,000 × $20)
Paid-In Capital in Excess of
Par—Common Stock ......................................
168,000**
120,000
48,000
**(300,000 shares × 2% × $28) = $168,000
Dec. 15 Cash Dividends Payable ......................................
Cash .................................................................
104,000
15 Stock Dividends Distributable ............................
Common Stock ...............................................
120,000
104,000
Ex. 11–23
Earnings per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
Earnings per Share =
$133,750  $4 per share  10,000 shares 
25,000 shares
Earnings per Share = $3.75 per share
120,000
Ex. 11–24
a. Earnings per Share =
Net Income  Preferred Dividends
Avg. Number of Common Shares Outstandin g
2009 Earnings per Share =
$11,293  $192
2,952 shares
= $3.76 per share
2008 Earnings per Share =
$11,798  $176
3,081 shares
= $3.77 per share
2007 Earnings per Share =
$10,063  $161
3,159 shares
= $3.13 per share
b.
2009
2008
2007
Earnings per share ..........................
As a percent of 2007 (base year) ....
$3.76
120%
$3.77
120%
$3.13
100%
Net income .......................................
As a percent of 2005 (base year) ....
$11,293
112%
$11,798
117%
$10,063
100%
The earnings per share growth for 2008 was slightly higher (120%) than the
net income (117%) growth. While net income declined from 117% to 112% of
the 2007 base year, earnings per share remained the same as 2008 (120%) of
the base year. The number of common shares outstanding remained relatively the same during the three-year period.
Ex. 11–25
a.
OfficeMax:
Earnings per Share =
Net Income  Preferred Dividends
Average Number of Common Shares Outstandin g
Earnings per Share =
$667,000  $2,818,000
77,483,000 shares
Earnings per Share = $(0.03) per share
Staples:
Earnings per Share =
Net Income  Preferred Dividends
Average Number of Common Shares Outstandin g
Earnings per Share =
$738,671,0 00
721,838,000 shares
Earnings per Share = $1.02 per share
b. Staples’ net income of $738,671,000 is much greater than OfficeMax’s net
income of $667,000. This is because Staples is a much larger business than
OfficeMax. Staples also has over 9 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 $1.02 than does OfficeMax,
which has negative earnings per share of $0.03.