Accounting
What the Numbers Mean 10e
Demonstration Problem
Chapter 8 – Problem 31
Calculate Missing Amounts – Dividends, Total
Shares, and Per Share Information
Problem Definition
• Allyn, Inc., has the following stockholders’ equity section in its
November 30, 2013, balance sheet:
Paid-in capital:
12% preferred stock, $60 par value, 1,500 shares
authorized, issued, and outstanding . . . . . . . . . . . . . . . . . . . .
$ ?
Common stock, $8 par value, 100,000 shares authorized,
? shares issued, ? shares outstanding. . . . . . . . . . . . . . . . . . .
240,000
Additional paid-in capital on common stock . . . . . . . . . . . . . . . . .
540,000
Additional paid-in capital from treasury stock . . . . . . . . . . . . . . . .
13,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
97,000
Less: Treasury stock, at cost (2,000 shares of common). . . .. . . .
(18,000)
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ ?
Problem Definition
a.
b.
c.
d.
Calculate the amount of the total annual dividend
requirement on preferred stock.
Calculate the amount that should be shown on the
balance sheet for preferred stock.
Calculate the number of shares of common stock that are
issued and the number of shares of common stock that
are outstanding.
On January 1, 2013, the firm’s balance sheet showed
common stock of $210,000 and additional paid-in capital
on common stock of $468,750. The only transaction
affecting these accounts during 2013 was the sale of
some common stock. Calculate the number of shares
that were sold and the selling price per share.
Problem Definition
e.
f.
Describe the transaction that resulted in the additional
paid-in capital from treasury stock.
The retained earnings balance on January 1, 2013, was
$90,300. Net income for the past 11 months has been
$24,000. Preferred stock dividends for all of 2013 have
been declared and paid. Calculate the amount of
dividends on common stock during the first 11 months
of 2013.
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share
$60
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding =
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding = 1,500
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding = 1,500
Annual dividend requirement =
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding = 1,500
Annual dividend requirement =
$7.20 par value
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding = 1,500
Annual dividend requirement =
$7.20 par value * 1,500 shares outstanding
Problem Solution
a.
Annual dividend requirement = Annual dividend
per share * Number of shares outstanding
Annual dividend per share =
Par value per share * dividend rate =
$60
* 12%
= $7.20
Number of shares outstanding = 1,500
Annual dividend requirement =
$7.20 par value * 1,500 shares outstanding = $10,800
Problem Definition
a.
b.
c.
d.
Calculate the amount of the total annual dividend
requirement on preferred stock.
Calculate the amount that should be shown on the
balance sheet for preferred stock.
Calculate the number of shares of common stock that are
issued and the number of shares of common stock that
are outstanding.
On January 1, 2013, the firm’s balance sheet showed
common stock of $210,000 and additional paid-in capital
on common stock of $468,750. The only transaction
affecting these accounts during 2013 was the sale of
some common stock. Calculate the number of shares
that were sold and the selling price per share.
Problem Solution
b. Balance sheet amount =
Problem Solution
b. Balance sheet amount =
$60 par value
Problem Solution
b. Balance sheet amount =
$60 par value * 1,500 shares issued =
Problem Solution
b. Balance sheet amount =
$60 par value * 1,500 shares issued =
$90,000
Problem Definition
a.
b.
c.
d.
Calculate the amount of the total annual dividend
requirement on preferred stock.
Calculate the amount that should be shown on the
balance sheet for preferred stock.
Calculate the number of shares of common stock that
are issued and the number of shares of common stock
that are outstanding.
On January 1, 2013, the firm’s balance sheet showed
common stock of $210,000 and additional paid-in capital
on common stock of $468,750. The only transaction
affecting these accounts during 2013 was the sale of
some common stock. Calculate the number of shares
that were sold and the selling price per share.
Problem Solution
c. Number of shares issued =
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
= 30,000
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
= 30,000
Number of shares outstanding =
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
= 30,000
Number of shares outstanding =
30,000 shares issued
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
= 30,000
Number of shares outstanding =
30,000 shares issued
- 2,000 treasury shares
Problem Solution
c.
Number of shares issued =
$240,000 balance sheet amount
/ $8 par value
= 30,000
Number of shares outstanding =
30,000 shares issued
- 2,000 treasury shares
= 28,000
Problem Definition
a.
b.
c.
d.
Calculate the amount of the total annual dividend
requirement on preferred stock.
Calculate the amount that should be shown on the
balance sheet for preferred stock.
Calculate the number of shares of common stock that are
issued and the number of shares of common stock that
are outstanding.
On January 1, 2013, the firm’s balance sheet showed
common stock of $210,000 and additional paid-in
capital on common stock of $468,750. The only
transaction affecting these accounts during 2013 was
the sale of some common stock. Calculate the
number of shares that were sold and the selling price
per share.
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Number of shares sold =
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value
= 3,750
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value
= 3,750
Selling price per share =
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value
= 3,750
Selling price per share = ($30,000 increase in common stock
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value
= 3,750
Selling price per share = ($30,000 increase in common stock
+ $71,250 increase in additional paid-in capital)
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013. . . . . . . . . . . . . . . . .
Increase. . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value =
3,750
Selling price per share = ($30,000 increase in common stock
+ $71,250 increase in additional paid-in capital)
/ 3,750 shares sold
Problem Solution
d.
November 30, 2013. . . . . . . . . . . . . .
January 1, 2013. . . . . . . . . . . . . . . . .
Increase. . . . . . . . . . . . . . . . . . . . . . .
Additional
Common Stock Paid-in Capital
$240,000
$540,000
(210,000)
(468,750)
$ 30,000
$ 71,250
Number of shares sold = $30,000 increase in common stock
/ $8 par value =
3,750
Selling price per share = ($30,000 increase in common stock
+ $71,250 increase in additional paid-in capital)
/ 3,750 shares sold =
$27 per share
Problem Definition
e.
f.
Describe the transaction that resulted in the
additional paid-in capital from treasury stock.
The retained earnings balance on January 1, 2013, was
$90,300. Net income for the past 11 months has been
$24,000. Preferred stock dividends for all of 2013 have
been declared and paid. Calculate the amount of
dividends on common stock during the first 11 months
of 2013.
Problem Solution
e. Treasury stock was resold at a price greater than its cost.
Problem Definition
e.
f.
Describe the transaction that resulted in the additional
paid-in capital from treasury stock.
The retained earnings balance on January 1, 2013,
was $90,300. Net income for the past 11 months has
been $24,000. Preferred stock dividends for all of
2013 have been declared and paid. Calculate the
amount of dividends on common stock during the
first 11 months of 2013.
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Less: Common stock dividends . . . . . . . . . . . .
? .
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Less: Common stock dividends . . . . . . . . . . . .
? .
Retained earnings, December 31, 2013 . . . . . . $97,000
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Less: Common stock dividends . . . . . . . . . . . .
? .
Retained earnings, December 31, 2013 . . . . . . $97,000
Solving for the unknown:
Common stock dividends =
Problem Solution
f.
Retained earnings, January 1, 2013 . . . . . . . . . $90,300
Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000
Less: preferred stock dividends . . . . . . . . . . . . (10,800)
Less: Common stock dividends . . . . . . . . . . . .
? .
Retained earnings, December 31, 2013 . . . . . . $97,000
Solving for the unknown:
Common stock dividends = $6,500
Accounting
What the Numbers Mean 10e
You should now have a better understanding
of the stockholders’ equity section of the balance sheet.
Remember that there is a demonstration problem for
each chapter that is here for your learning benefit.
David H. Marshall
Wayne W. McManus
Daniel F. Viele