Chapter 8 – Exercises
Exercise 16
1st Year
2nd Year
3rd Year
4th Year
a. Total dividend declared .............
$ 4,000
$ 10,400
$ 40,000
$ 90,000
b. Total preferred dividends ..........
Preferred shares outstanding ...
Preferred dividend per share ....
$ 4,000
÷ 80,000
$ 0.05
$ 10,400
÷ 80,000
$
0.13
$ 12,000
÷ 80,000
$
0.15
$ 12,000
÷ 80,000
$
0.15
—
$ 28,000
÷200,000
$
0.14
$ 78,000
÷ 200,000
$
0.39
Dividend for common share
(a. – b.) ...................................
Common shares outstanding ...
Common dividend per share ....
$
—
$
Exercise 17
a.
Assets
Cash
Jan. 29.
1,725,000
Balance Sheet
= Liabilities +
Stockholders’ Equity
Paid-In Capital in
Common
Excess of Par—
=
Stock
+
Common Stock
750,000
975,000
Income
Statement
Assets
Cash
May 31.
Balance Sheet
= Liabilities +
Stockholders’ Equity
Paid-In Capital in
Preferred
Excess of Par—
=
Stock
+
Preferred Stock
600,000
400,000
Income
Statement
200,000
b. $2,325,000 ($1,725,000 + $600,000)
Exercise 21
a.
$990,000 ($33 × 30,000 shares)
b. Stockholders’ Equity section as a reduction (decrease)
c. Banff 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.
d.
Assets
Cash
Balance Sheet
= Liabilities +
Stockholders’ Equity
Treasury
Paid-In Capital
=
Stock
+ from Treasury Stock
800,0001
Jan. 25.
1 $800,000
= 20,000 shares × $40
2 $660,000
= 20,000 shares × $33
3 $140,000
= $800,000 – $660,000
660,0002
Income
Statement
140,0003
Exercise 23
(1)
(2)
(3)
(4)
(5)
Declaring a cash dividend
Paying the cash dividend
declared in (1)
Authorizing and issuing stock
certificates in a stock split
Declaring a stock dividend
Issuing stock certificates for
the stock dividend declared
in (4)
Assets
Liabilities
Stockholders’
Equity
0
+
–
–
–
0
0
0
0
0
0
0
0
0
0
Exercise 24
a. 72,000 shares (18,000 × 4)
b. $70 per share ($280 ÷ 4)
Chapter 8 – Problems
Problem 2
1.
$46,875 ($625,000 × 7.5%)
2.
Balance Sheet
Assets =
Liabilities
Employee
FICA
Bond
Group
Income Tax
Tax
Deduction
Ins.
Payable + Payable + Payable + Payable
July 17.
98,000
46,875
15,000
12,500
+ Stockholders’ Equity
+
Salaries
Payable
452,625*
+
Income
Statement
Retained
Earnings
–625,000
July 17.
Income Statement
July 17. Sales salaries exp. –315,000
Warehouse salaries
exp.
–185,000
Office salaries exp. –125,000
*$452,625 = $625,000 – $98,000 – $46,875 – $15,000 – $12,500
Problem 2, Concluded
3. (a)
(b)
(c)
$46,875 ($625,000 × 7.5%)
$26,250 ($625,000 × 4.2%)
$5,000 ($625,000 × 0.8%)
4.
Assets =
FICA Tax
Payable
July 17.
46,875
Balance Sheet
Liabilities
+ Stockholders’ Equity
SUTA
FUTA
Retained
+ Payable + Payable +
Earnings
26,250
5,000
July 17.
–78,125
Income Statement
Payroll tax exp. –78,125
Income
Statement
July 17.
Problem 3
1.
July 1.
Assets
=
Cash
=
25,000,000
Balance Sheet
Liabilities
+ Stockholders’ Equity
Income
Statement
Bonds Payable
25,000,000
2.
Dec. 31.
Assets
=
Cash
=
Balance Sheet
Liabilities
+ Stockholders’ Equity
Retained
Earnings
–1,000,000*
–1,000,000
Income
Statement
Dec. 31
Income Statement
Dec. 31. Interest
exp. –1,000,000
*$25,000,000 × 8% × 1/2 = $1,000,000
3.
June 30.
4.
Assets
=
Cash
=
–25,000,000
Balance Sheet
Liabilities
+ Stockholders’ Equity
Income
Statement
Bonds Payable
–25,000,000
The bonds would have sold at a premium since the market rate of interest is less than the
coupon rate of interest. Thus, investors will be willing to pay more than the face amount
of the bonds when the interest payments they will receive from the bonds are more than
the amount of interest that they could receive from investing in other bonds.