Chapter 11 Class Work
11-1. Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
a. The issuance of stock decreases several important financial ratios.
b. Issuing bonds dilutes the voting power of the stockholders.
c. Corporations are not required to return the investment to the stockholders.
d. Investors expect to earn a higher rate of return on stocks than bonds.
11-2. Solli Company has 20,000 shares of stock authorized at January 1. Solli issues 7,500 shares to the stockholders
during the year and then the company repurchases 3,000 shares as treasury stock. Based on this information, how many
shares are outstanding at December 31?
a. 20,000
b. 24,500
c. 4,500
d. 3,000
11-3. Issued shares of stock represents the
a. maximum number of shares that can be issued.
b. number of shares that have been sold.
c. number of shares that are currently held by stockholders.
d. number of shares that have been repurchased by the corporation.
11-4. Wall Corporation shows the following in the stockholders' equity section of its balance sheet: The stated value of
its common stock is $5.00 and the total balance in the common stock account is $4,000,000. Also noted is that 50,000
shares are currently designated as treasury stock. The number of shares outstanding is
a. 800,000.
b. 750,000.
c. 725,000.
d. 700,000.
11-5. On January 1, 2013, Astare Company issued 20,000 shares of 8%, $50 par value cumulative preferred stock. In
2013 and 2014, no dividends were declared on preferred stock. In 2015, Astare had a profitable year and decided to pay
dividends to stockholders of both preferred and common stock. If they have $400,000 available for dividends in 2015,
how much could it pay to the common stockholders?
a. $ 80,000
b. $160,000
c. $320,000
d. $240,000
11-6. The VV Company issues 3,000 shares of $2 par common stock in exchange for the services of a accountant during
its first month of business. The accountant’s normal fee is $12,000 for similar work. Which of the following would be
recorded if the stock is not currently trading?
a. A debit to Common Stock for $6,000
b. A credit to Common Stock for $12,000
c. A debit to Additional Paid-In Capital—Common Stock of $6,000
d. A credit to Additional Paid-In Capital—Common Stock of $6,000
11-7. Which of the following should be considered when a company decides to declare a cash dividend on common
stock?
a. The retained earnings balance only
b. The amount of authorized shares of common stock
c. The book value of the company's stock
d. The cash available and the retained earnings balance
Classwork 11-8 Solving the Unknowns
The Stockholders’ Equity category of Adella Company's balance sheet appears below.
Common stock, $5 par, 200,000 shares issued, 180,000 shares outstanding
Additional paid-in capital
Total contributed capital
Retained earnings
Treasury stock, __________? Shares at cost
Total stockholders’ equity
Required
1. Determine the missing values indicated by question marks.
$ ________?
________?
$1,800,000 Cr.
1,000,000 Cr.
280,000 (Dr. or Cr.?)
_________?
2. What was the issue price of the issued common stock?
3. What was the cost per share of the treasury stock?
4. What is the book value per share of the outstanding common stock?
Classwork 11-9 Stock Issuance. Jocelyn, Inc. had the following transactions during 2015, its first year of business.
a. On March 1, 2015, issued 100,000 shares of $10 par common stock for cash at $35 per share.
b. Issued 5,000 shares of common stock to Doce Co. on July 1, 2015 to acquire a building. Doce had acquired the
building in 2010 at a price of$105,000. Jocelyn had the building appraised for $200,000 on July 1, 2015, when
the stock was selling for $40 per share.
c. Issued 3,000 shares of stock on October 1 to acquire a copyright. The accountant has been unable to estimate
the value of the copyright, but Jocelyn's common stock was selling at $42 per share on October 1, 2015.
Determine the balance sheet amounts for common stock and additional paid-in capital.
Classwork 11-10 Stock Issuance. The following transactions are for West, Inc. during 2015. Prepare journal entries for
each transaction.
a. On January 1, the corporation was organized and received authorization to issue 5,000 shares of 8%, $100 par value
preferred stock and 2,000,000 shares of $10 par value common stock.
b. On January 1, West issued for cash 100,000 shares of common stock at $60 per share.
c. On January 1, West a issued 2,000 shares of preferred stock exchange for land appraised at $230,000.
d. On October 1, West issued another 50,000 shares of common stock at $65 per share for cash.
e. On December 26, 2015, the Board of Directors for West declared a cash dividend of $168,000 to stockholders of
record of January 10, 2016, payable on January 25, 2016. (The net income for the year was $420,000.)
Prepare the Stockholders’ Equity section of the balance sheet as of December 31, 2015.
Classwork 11-11 Treasury Stock. The Stockholders’ Equity section of Brender Company's balance sheet on January 1,
2015, appeared as follows:
Common stock, $5 par, 200,000 shares issued and outstanding $1,000,000
Additional paid-in capital
500,000
Retained earnings
600,000
Total stockholders’ equity
$2,100,000
The following treasury stock transactions occurred during 2015. Prepare journal entry for each transaction.
a. Reacquired 40,000 shares of common stock at $15 per share on July 1, 2015.
b. Reacquired 10,000 shares of common stock at $16 per share on August 1, 2015.
c. Reissued 30,000 shares of common stock held in the treasury for cash of $18 per share on November 1, 2015.
(Record the cost of treasury stock sold at $15 per share and Additional paid-in capital for the difference.)
Classwork 11-12 Treasury Stock Transactions. The Stockholders’ Equity category of Big John's balance sheet on January
1, 2015, appeared as follows:
Common stock, $9 par, 100,000 shares issued and outstanding $ 900,000
Additional paid-in capital
1,200,000
Retained earnings
800,000
Total stockholders’ equity
$2,900,000
The following treasury stock transactions occurred during 2015. Prepare a journal entry for each transaction.
a. Reacquired 10,000 shares of common stock at $18 per share on January 2.
b. Reacquired 15,000 shares of common stock at $14 per share on March 15.
c. Reissued all treasury stock on September 18 for $12 per share.
Classwork 11-13 Cash Dividends to Preferred and Common Stock. Dallas Company has 50,000 shares of $100 par value,
8% preferred stock and 400,000 shares of $10 par value common stock outstanding. The preferred stock is
nonparticipating. Dividends were paid in 2011 to both preferred and common stockholders. Since 2011, Dallas has
declared and paid dividends as listed below. Determine the amount of dividends to be paid to each class of stock that
would be paid if the preferred stock were cumulative and again if the preferred stock were noncumulative. Dividends
are declared each year on December 1st, payable on December 30th.
If Preferred Cumulative If Preferred Noncumulative
Dividends
Year Declared
2012
$0
2013
200,000
Preferred
Stock
Dividends
Common
Stock
Dividends
Preferred Common Stock
Stock
Dividends
Dividends
2014 1,000,000
2015 1,500,000
2. Prepare the 2014 journal entries for declaration and payment of dividends, if the preferred stock were cumulative:
December 1, 2014
December 30, 2014
3. Prepare the 2014 journal entries for declaration and payment of dividends, if the preferred stock were
noncumulative:
December 1, 2014
December 30, 2014