Accounting II
Review - Chapters 12,13 and 14
Answer Key
1. Retained Earnings
$32,500
Income Tax Payable
$32,500
Borg Industries
Statement of Retained Earnings
For the Year Ended December 31, 2003
Retained earnings balance, January 1, 2003
Prior period adjustment – debit to correct error
Retained earnings balance, January 1, 2003 as adjusted
Net income for 2003
Less: Dividends for 2003
Retained earnings balance, December 31, 2003
$467,800
( 32,500)
$435,300
168,300
160,500
$443,100
Ending balance of December 31, 2002 is the beginning balance at January 1, 2003.
2. a. Treasury Stock
Cash
70,000
b.
47,250
1,750
Cash
Retained Earnings
Treasury Stock
(5,000 x $14)
70,000
(3,500 x $13.50)
((14 -$13.50) x 3,500)
49,000 ($14 x 3,500)
3. 5/15
Retained Earnings
61,250
Dividends Payable – Preferred
27,500 (5,500 x 5% x $100)
Dividends Payable – Common
33,750 (45,000 x $ .75)
5/31
Dividends Payable – Preferred
Dividends Payable – Common
Cash
27,500
33,750
Income Tax Payable
Retained Earnings
17,500
6/8
61,250
17,500
6/30
Memo: 2 for 1 split, 90,000 shares outstanding, $ .50 par value (from
45,000 shares outstanding and $1 par value)
10/3
Retained Earnings
76,500
Common stock dividend distributable
Additional Paid in Capital – Common
10/26
Common stock dividend distributable 4,500
Common stock
12/31
4.
Income Summary
Retained Earnings
(90,000 x 10%x $8.50)
4,500 (9,000 x $ .50)
72,000 (9,000 x $8.00)
4,500
675,000
675,000
Retained Earnings
61,750 (65,000 x 10% x $9.50)
Common stock dividend distributable
32,500
(65,000 x 10% x $5.00)
Additional paid in capital – common
29,250
(65,000 x 10% x $4.50)
Common stock dividend distributable
Common stock
32,500
32,500
5.
Walter Corporation
Retained Earnings Statement
For the Year Ended December 31, 2006
Balance, January 1, as reported
$378,000
Correction for understatement of 2005 net income (inventory error) 58,000 (#5)
Balance, January 1 as adjusted
436,000
Less: Net loss
(70,000) (#4)
366,000
Less: Cash dividends
$60,000
(#2)
Stock dividends
40,000
(100,000)
(#1)
Balance, December 31
$ 266,000
6. Stockholders’ equity:
Paid in capital:
Capital stock
8% preferred stock, $100 par value, 10,000
shares authorized, 3,000 shares issued
Common stock, $1 par value, 500,000 shares
authorized, 400,000 shares issued, 390,000
shares outstanding
Common stock dividends distributable
Total capital stock
Additional Paid in Capital
In excess of par value – preferred
310,000
In excess of par value – common
850,000
Total additional paid in capital
Total paid in capital
Retained earnings (see note)
Total paid in capital and retained earnings
Less: Treasury stock
Total stockholders equity
$300,000
400,000
80,000
780,000
1,160,000
1,940,000
950,000
2,890,000
(85,000)
2,805,000
Note: Retained earnings is restricted in the amount of $200,000 for plant
expansion.
7. Stockholders equity
Paid in capital
Capital stock
8% Preferred stock, $100 par value
Common stock, $10 stated value
Additional paid in capital
In excess of par value – preferred stock
In excess of stated value – common stock
From treasury stock
Total additional paid in capital
Total paid in capital
Retained earnings
Total paid in capital and retained earnings
Less: Treasury stock – common
Total stockholders’ equity
8. Stockholders’ equity
Paid in capital
Capital stock
9% Preferred stock, $100 par value, cumulative
10,000 shares issued and outstanding
$1,000,000
Common stock, no par, $10 stated value, 500,000
shares authorized, 300,000 shares issued and
outstanding
3,000,000
Total capital stock
4,000,000
Additional paid in capital
In excess of par value – preferred stock $ 70,000*
In excess of par value – common stock 2,400,000**
Total additional paid in capital
2,470,000
Total paid in capital
$6,470,000
*10,000 shares x $7 = $70,000
**300,000 shares x $8 = $2,400,000
9. (a)
Net income $100,000
Salary
Interest
40,000 x 10%
60,000 x 10%
80,000 x 10%
Profit/Loss
47,000 x 40%
47,000 x 20%
47,000 x 40%
Totals
A
20,000
B
15,000
-
Total
35,000
8,000
18,000
18,800
26,800
47,000
100,000
4,000
6,000
18,800
9,400
42,800
30,400
To close income summary:
Income Summary
A, Capital
B, Capital
C, Capital
100,000
42,800
30,400
26,800
To close drawing accounts:
A, Capital
B, Capital
A, Drawing
B, Drawing
C
15,000
10,000
15,000
10,000
9. b)
Net income $20,000
Salary
Interest
40,000 x 10%
60,000 x 10%
80,000 x 10%
Profit/Loss
(33,000) x 40%
(33,000) x 20%
(33,000) x 40%
Totals
A
20,000
B
15,000
C
-
Total
35,000
8,000
18,000
(13,200)
(5,200)
(33,000)
20,000
4,000
6,000
(13,200)
(6,600)
10,800
14,400
To close income summary:
Income Summary
C, Capital
A, Capital
B, Capital
20,000
5,200
10,800
14,400
To close drawing accounts:
A, Capital
B, Capital
A, Drawing
B, Drawing
15,000
10,000
10. a) Old equity
New investment
Total equity
$150,000
80,000
$230,000
x 30%
$ 69,000
15,000
10,000
30% equity
Cash
80,000
Alt Capital
Bell, Capital
Stark, Capital
6,600
4,400
69,000
($11,000 x 60%)
($11,000 x 40%)
10 b) Old equity
New investment
Total equity
$150,000
30,000
$180,000
x 30%
$ 54,000
30% equity
Cash
30,000
Alt Capital
14,400
(24,000 x 60%)
Bell, Capital
9,600
(24,000 x 40%)
Stark Capital
54,000
11.a) Sam Capital
Good, Capital
Bye, Capital
Cash
20,000
3,600
2,400
(6,000 x 3/5)
(6,000 x 2/5)
26,000
$26,000 - $20,000 = $6,000 and then the 6,000 is divided in 3:2 ratio
11. b) Sam, Capital
20,000
Good, Capital
3,000 (5,000 x 3/5)
Bye, Capital
2,000 (5,000 x 2/5)
Cash
15,000
$20,000 - $15,000 = $5,000 and then the 5,000 is divided in 3:2 ratio.
12a)
Net income: $153,000
Salary
Interest
Remainder
12b)
Net income: $34,500
Salary
Interest
Remainder
K
35,000
8,500
(85,000 x 10%)
14,000
(42,000 x 1/3)
57,500
B
43,000
11,000
(110,000 x 10%)
14,000
(42,000 x 1/3)
68,000
M
K
35,000
8,500
(85,000 x 10%)
(25,500)
(76,500 x 1/3)
18,000
B
43,000
11,000
(110,000 x 10%)
(25,500)
(76,500 x 1/3)
28,500
M
13,500
(135,000 x 10%)
14,000
(42,000 x 1/3)
27,500
13,500
(135,000 x 10%)
(25,500)
(76,500 x 1/3)
(12,000)
Total
78,000
33.000
42,000
153,000
Total
78,000
33.000
(76,500)
34,500
12 c)
Net loss: $16,500
Salary
Interest
Remainder
K
35,000
8,500
(85,000 x 10%)
(42,500)
(127,500 x 1/3)
1,000
B
43,000
11,000
(110,000 x 10%)
(42,500)
(127,500 x 1/3)
11,500
M
13,500
(135,000 x 10%)
(42,500)
(127,500 x 1/3)
(29,000)
13. a. Cash
50,000
Loss on Sale
20,000
Other Assets
70,000
b.
Over, Cap
8,000
Dun, Cap
12,000
Loss on Sale
20,000
(20,000 x 2/5)
(20,000 x 3/5)
** You may combine a & b into one journal entry if you want**
c.
d.
14.
Accounts Payable
Cash
10,000
Over, Cap
Dun, Cap
Cash
32,000
8,000
10,000
Cash
29,500
Equipment
66,500
Note Payable
41,000
Simon, Cap
27,000
Syed, Cap
28,000
40,000
(12,000 + 17,500)
(29,0000+37,500)
(14,000 + 27,000)
(12,000+29,000-14,000)
(17,500+37,500-27,000)
b) Simon:
27,000 beginning balance
29,400 net income share (49,000 x 60%)
(30,000) withdraw
26,400 ending balance
Syed
28,000 beginning balance
19,600 net income share (49,000 x 40%)
(30,000) withdraw
17,600 ending balance
Total
78,000
33.000
(127,500)
(16,500)
15. $136,000 + $164,000 + $60,000 = $360,000 total equity in firm
a. $360,000 x 20% = $72,000 - $60,000 = $12,000
$12,000 x 7/12 = $7,000
$12,000 x 5/12 = $5,000
Cash
60,000
Wayne, Capital
7,000
Jayne, Capital
5,000
Layne, Capital
72,000
b. $360,000 x 1/6 = $60,000
Cash
60,000
Layne, Capital
60,000
c. $360,000 x 15% = $54,000 - $60,000 = ($6,000)
($6,000) x 7/12 = ($3,500)
($6,000) x 5/12 = ($2,500)
Cash
60,000
Layne, Capital
Wayne, Capital
Jayne, Capital
54,000
3,500
2,500
16. $217,000 + $233,000 = $450,000 equity prior to Phil’s investment
a. $450,000 + $200,000 = $650,000 x 25% = $162,500
$162,500 - $200,000 = ($37,500)/2 = ($18,750)
Bill:
Jill:
Phil:
$217,000 + $18,750 = $235,750
$233,000 + $18,750 = $251,750
$162,500
b. $450,000 + $150,000 = $600,000 x 25% = $150,000
Bill:
Jill:
Phil:
$217,000
$233,000
$150,000
c. $450,000 + $100,000 = $550,000 x 25% = $137,500
$137,500 - $100,000 = $37,500/2 = $18,750
Bill: $217,000 - $18,750 = $198,250
Jill
$233,000 - $18,750 = $214,250
Phil
$137,500
17.
a.
Xeni, Capital
50,000
Wally, Capital
50,000
only entry needed is the entry to transfer the capital balances – the cash paid/received is
a personal transaction and doesn’t go on the partnerships books.
b.
Xeni, Capital
50,000
Yvonne, Capital
25,000
Zachary, Capital
25,000
just transfer the capital balances
c.
Xeni, Capital
50,000
Cash
47,500
Yvonne, Capital
1,250 (2,500 x ½)
Zachary, Capital
1,250 (2,500 x ½)
d.
Xeni, Capital
50,000
Yvonne, Capital
2,500
(5,000 x ½)
Zachary, Capital
2,500
(5,000 x ½)
Cash
45,000
Notes Payable
10,000
18. $124,000 + $212,000 + $171,000 = $507,000 - $152,000 = ($355,000) loss to be
distributed to partners in their profit ratio of 6:5:4.
Catherine:
Alexander:
Nicholas:
($355,000) x 6/15 = ($142,000)
($355,000) x 5/15 = ($118,333)
($355,000) x 4/15 = ($ 94,667)
Catherine:
Alexander:
Nicholas:
$124,000 - $142,000 = ($18,000)
$212,000 - $118,333 = $93,667
$171,000 - $94,667 = $76,333
Catherine’s deficit must be divided between Alexander and Nicholas in their remaining
ratio of 5:4.
Alexander:
Nicholas:
($18,000) x 5/9 = ($10,000)
($18,000) x 4/9 = ($ 8,000)
Alexander:
Nicholas:
Catherine:
$93,667 - $10,000 = $83,667
$76,333 - $8,000 = $68,333
0
19.
June 1
No entry necessary
June 1
Organization Expense
Cash
4,300
Cash
38,250
June 2
4,300
Common Stock
June 3
Land
June 5
Cash
125,000
Revenue from Donations
125,000
Preferred Stock
20.
38,250 (4,500 x $8.50)
June 8
Land
Building
Common Stock
July 1
No entry necessary
July 1
Organization expense
Cash
150,000
150,000 (3,000 x $50)
85,000
130,000
215,000
6,800
6,800
July 2
Cash
525,000
(35,000 x $15)
Common Stock
350,000 (35,000 x $10)
Additional Paid in Capital – CS 175,000 (35,000 x($15-$10))
July 4
Land
July 5
Cash
95,000
Revenue from Donations
95,000
144,200
Preferred Stock
140,000 (1,400 x $100)
Additional Paid in Capital-PS
4,200
July 7
Patent
82,000
Common Stock
50,000 (5,000 x $10)
Additional Paid in Capital-CS 32,000
21. 1. $225,000/$50 = 4,500 shares
2. 80,000 x $10 = $800,000
3. $225,000 + $11,250 = $236,250/4,500 shares = $52.50 per share
4. 80,000 x ($13.50 - $10.00) - $280,000
5. $225,000 + $11,250 + $800,000 + $280,000 = $1,316,250
6. $152,600 - $138,100 = $14,500
22. a. journal entries:
1
Retained Earnings
109,250
Dividends Payable – Preferred
Dividends Payable – Common
14
No entry required
28
Dividends Payable – Preferred
Dividends Payable – Common
Cash
50,750
58,500
Income Summary
Retained Earnings
345,000
31
50,750 (14,500 x 7% x 50)
58,500 (78,000 x .75)
109,250
345,000
b. $49,800 + $345,000 - $109,250 = $285,550
23.
Preferred
Year 1
Year 2
Year 3
Year 4
Common
0
$25,000
$50,000
$117,000
0
0
0
$33,000
Dividends in Arrears
$48,000
$71,000
$69,000
0
8,000 x 6% x 100 = $48,000 preferred dividend
24.
Jan 18
Cash
1,000,000
(40,000 x $25)
Common Stock
400,000 (40,000 x $10)
Paid in Capital in Excess of Par Value
600,000 (40,000x($25-$10))
Aug 20
Treasury Stock
Cash
Nov 5
Cash
330,000
(15,000 x $22)
330,000
130,000
(5,000 x $26)
Treasury Stock
110,000 (5,000 x $22)
Paid in Capital from Treasury Stock 20,000 (5,000x($26-$22))
24 b) Stockholders’ equity:
Paid in capital
Common stock, $10 par value, 400,000 shares authorized;
290,000 shares issued and 280,000 outstanding
$2,900,000
Paid in capital in excess of par - CS
Paid in capital in excess of par – TS
Total paid in capital
Retained earnings
Total Paid in Capital and RE
Less: Treasury Stock – common (10,000 shares at cost)
Total Stockholders Equity
25.
a.
Treasury Stock
Cash
1,800,000
20,000
4,720,000
750,000
$5,470,000
( 220,000)
$5,250,000
54,000 (4,000 x $13.50)
54,000
b.
Cash
22,500
(1,500 x $15)
Treasury Stock
20,250 (1,500 x $13,50)
Paid in Capital from Treasury Stock 2,250 (1,500x ($15-$13.50))
c.
Cash
28,750
(2,500 x $11.50)
Paid in Capital from Treasury Stock 2,250
(use balance in account)
Retained Earnings
2,750
(remaining from RE)
Treasury Stock
33,750 (2,500 x $13.50)