Chapter 11: Exercises

Exercise 11-1: Characteristics of Corporations Match each characteristic with its description: 1. 2. 3. 4. 5. 6. 7. 8. Owner authority and control – One vote per share Ease of formation – Requires government approval Transferability of ownership – Readily transferred Ability to raise large capital amounts – High ability Duration of life – Unlimited Owner liability – Limited Legal status – Separate legal entity Tax status of income – Corporate income is taxed Exercise 11-2: Rights of Stockholders Indicate if each activity violated stockholder rights: 1. Did not allow the stockholder to sell – Violated (stock ownership is transferable). 2. Rejected stockholder’s request to manage – Not Violated (stockholders do not have a right to manage). 3. Paid smaller dividend to stockholder – Violated (all common stockholders receive the same dividend per share). 4. Rejected proxy voting request – Violated (stockholders can vote via proxy). 5. Paid common shareholder after creditors – Not Violated (creditors are paid first in liquidation). Exercise 11-3: Accounting for Stock Issuances Prepare journal entries for stock issuance under different scenarios. 1. $2 Par Value: plaintext Debit Cash $152,000 Credit Common Stock $38,000 Credit Paid-In Capital in Excess of Par Value $114,000 2. No Par or Stated Value: plaintext Debit Cash $152,000 Credit Common Stock $152,000 3. $5 Stated Value: plaintext Debit Cash $152,000 Credit Common Stock $95,000 Credit Paid-In Capital in Excess of Stated Value $57,000 Exercise 11-4: Recording Stock Issuances Prepare journal entries for each issuance: 1. 4,000 shares of $5 par value common stock for $35,000 cash: plaintext Debit Cash $35,000 Credit Common Stock $20,000 Credit Paid-In Capital in Excess of Par Value $15,000 2. 2,000 shares of no-par stock with $1 stated value to promoters: plaintext Debit Organization Expenses $40,000 Credit Common Stock $2,000 Credit Paid-In Capital in Excess of Stated Value $38,000 3. 2,000 shares of no-par, no stated value stock to promoters: plaintext Debit Organization Expenses $40,000 Credit Common Stock $40,000 4. 1,000 shares of $50 par value preferred stock for $60,000 cash: plaintext Debit Cash $60,000 Credit Preferred Stock $50,000 Credit Paid-In Capital in Excess of Par Value $10,000 Exercise 11-5: Analyzing Stock Issuance Impact on Accounting Equation Analyze each transaction from Exercise 11-4 on the accounting equation. 1. Cash +$35,000, Common Stock +$20,000, Additional Paid-In Capital +$15,000 2. Organization Expense +$40,000, Common Stock +$2,000, Additional Paid-In Capital +$38,000 3. Organization Expense +$40,000, Common Stock +$40,000 4. Cash +$60,000, Preferred Stock +$50,000, Additional Paid-In Capital +$10,000 Exercise 11-6: Stock Issuance for Noncash Assets Issuance of 7,000 shares of $7 par value common stock for land and building: plaintext Debit Land $45,000 Debit Building $85,000 Credit Common Stock $49,000 Credit Paid-In Capital in Excess of Par $81,000 Exercise 11-7: Impact of Dividends and Stock Splits For each transaction: 1. Dividend: Decreases total equity, no effect on total assets or liabilities. 2. Stock Split: No impact on total assets, liabilities, or equity. Exercise 11-8: Large Stock Dividend After a 50% stock dividend, increase common stock account by par value of additional shares. Update shares outstanding by multiplying by 1.5 (e.g., 100,000 shares becomes 150,000). Exercise 11-9: Stock Split For a 3-for-1 stock split, multiply the number of shares outstanding by 3, and divide par value per share by 3. Adjust only the share count and par value; equity balances remain the same. Exercise 11-10: Small Stock Dividend 1. Declaration: plaintext Debit Retained Earnings Credit Common Stock Dividend Distributable Credit Paid-In Capital in Excess of Par 2. Distribution: plaintext Debit Common Stock Dividend Distributable Credit Common Stock Exercise 11-11 and 11-12: Dividends on Preferred and Common Stock Calculate dividends based on stock class (noncumulative or cumulative). Distribute dividends based on priority, with preferred stock receiving its dividend rate before common stock receives any amount. Exercise 11-13: Treasury Stock Transactions 1. Purchase Treasury Stock: plaintext Debit Treasury Stock Credit Cash 2. Sale of Treasury Stock (above/below cost): o Above Cost: Credit Paid-In Capital, Treasury Stock. o Below Cost: Debit Paid-In Capital, Treasury Stock, then Retained Earnings if needed. Exercise 11-14: Preparing Stockholders' Equity Section List stock accounts, paid-in capital, and retained earnings; adjust for net income and dividends. Include treasury stock as a reduction to total equity. Exercise 11-15: Classified Balance Sheet Organize assets, liabilities, and equity accounts. Include equity components under stockholders' equity. Exercise 11-16: Determining Retained Earnings Balance Adjust retained earnings for beginning balance, net income, dividends, and any prior period adjustments. Exercise 11-17 to 11-19: Statements of Retained Earnings & Stockholders’ Equity Prepare statements by starting with beginning retained earnings, adding net income, subtracting dividends, and adjusting for prior period errors. Exercise 11-20 to 11-23: EPS, PE Ratio, Dividend Yield 1. EPS: Net Income−Preferred Dividends/Weighted-Average Shares 2. PE Ratio: Market Price/EPS 3. Dividend Yield: Dividends per Share/Market Price per Share Exercise 11-24: Statement of Retained Earnings and Treasury Stock Prepare journal entries, update retained earnings, and adjust stockholders' equity for treasury stock transactions and dividends.