Monday November 28th Chapter 11 ANSWERS TO QUESTIONS E11 1 Computation of End of Year Balance for Treasury Stock Beginning balance 380 474 028 Net decrease 5 047 286 Ending balance 375 426 742 Computation of Shares Outstanding Issued shares 2 805 961 317 Treasury stock 375 426 742 Shares Outstanding 2 430 534 575 E11 5 Req 1 a Cash 5 600 shares x 20 A Common stock 5 600 shares x 10 SE Capital in excess of par common stock SE Sold common stock at a premium b Cash 1 000 shares x 25 A Common stock 1 000 shares x 10 SE Capital in excess of par common stock SE Sold common stock at a premium 112 000 56 000 56 000 25 000 10 000 15 000 Req 2 Stockholders Equity Contributed capital Common stock par 10 authorized 11 500 shares outstanding 6 600 shares 66 000 Contributed capital in excess of par 71 000 Total contributed capital 137 000 Retained earnings deficit 6 000 Stockholders equity 131 000 Req 3 The company has a negative balance in retained earnings which in most cases would preclude the payment of dividends Dividends are a distribution of earnings to the owners In the absence of retained earnings dividends should not be paid Wednesday November 30th E11 16 Req 1 Feb 1 Treasury stock common 160 shares x 20 XSE SE Cash A July 15 Cash 80 shares x 21 A Treasury stock common XSE SE Capital in excess of par SE Sept 1 Cash 50 shares x 19 A Capital in excess of par SE Treasury stock common 50 shares x 20 XSE SE 3 200 3 200 1 680 1 600 80 950 50 1 000 Req 2 Dividends are not paid on treasury stock Therefore the amount of total cash dividends paid is reduced when treasury stock is purchased Req 3 The sale of treasury stock for more or less than its original purchase price does not have an impact on net income The transaction affects only balance sheet accounts The cash received from the sale of treasury stock is a cash inflow which would affect the Statement of Cash Flows in the financing activities section E11 20 July 15 Retained earnings SE 119 900 000 Cash A Declaration and payment of preferred dividends Retained earnings SE 691 688 600 Cash A Declaration and payment of common dividends Computation of shares outstanding Shares issued 387 514 300 Treasury stock 41 670 000 Shares outstanding 345 844 300 119 900 000 691 688 600 Dividends paid 345 844 300 x 2 691 688 600 M11 8 Past Year 200 000 shares 2 400 000 Current Year 200 000 shares 2 400 000 Total to Preferred Stockholders 800 000 M11 9 Stock Dividend Stock Split No change in assets No change in assets No change in liabilities No change in liabilities Increase in common stock No change in common stock No change in stockholders equity decrease retained earnings and increase contributed capital by the same amount No change in stockholders equity Decreases market value Decrease in market value P11 1 1 Shares authorized given Shares issued 2 125 000 17 Shares outstanding 125 000 3 000 200 000 125 000 122 000 2 Capital in excess of par 2 125 000 125 000 shares issued x 10 par 875 000 3 Earnings per share 118 000 122 000 shares 97 rounded 4 Dividend per share 73 200 122 000 shares 0 60 5 Treasury stock Stockholders equity as a deduction in the amount of 3 000 shares x 20 cost 60 000 6 Stock split 100 Par value per share after the split 10 2 5 Outstanding shares before split per 1 above 122 000 x 2 244 000 shares outstanding after the split 7 Entry for the stock split None because the total par value amount before and after the split is the same retained earnings are not capitalized in a stock split 8 Entry for stock dividend capitalize retained earnings for market value of 21 per share Retained earnings 122 000 shares x 10 x 21 SE Common stock 122 000 shares x 10 x 10 SE Capital in excess of par 122 000 shares x 10 x 21 10 SE 256 200 122 000 134 200 ANSWERS TO MUTLIPLE CHOICE 1 c 6 b 2 d 7 c 3 b 8 c 4 a 9 d 5 c 10 a