Chapter 11: Quick Study

QS 11-1: Characteristics of Corporations • True Statements: o Capital is more easily accumulated than with most other forms of organization. o Corporate income that is distributed to shareholders is usually taxed twice. o It is a separate legal entity. o Owners are not agents of the corporation. QS 11-2: Issuance of Common Stock 1. $5 Cash per Share: plaintext Debit Cash $375,000 Credit Common Stock $375,000 2. $6 Cash per Share: plaintext Debit Cash $450,000 Credit Common Stock $375,000 Credit Paid-In Capital in Excess of Par $75,000 QS 11-3: Issuance of Par and Stated Value Common Stock 1. $2 Par Value: plaintext Debit Cash $648,000 Credit Common Stock $72,000 Credit Paid-In Capital in Excess of Par $576,000 2. $2 Stated Value: plaintext Debit Cash $648,000 Credit Common Stock $72,000 Credit Paid-In Capital in Excess of Stated Value $576,000 QS 11-4: Issuance of No-Par Common Stock 1. Selling for $29 Cash per Share: plaintext Debit Cash $1,827,000 Credit Common Stock $1,827,000 2. Exchanged for Land: plaintext Debit Land $1,827,000 Credit Common Stock $1,827,000 QS 11-5: Issuance of Common Stock 1. March 1: plaintext Debit Cash $297,500 Credit Common Stock $170,000 Credit Paid-In Capital in Excess of Par $127,500 2. April 1: plaintext Debit Cash $70,000 Credit Common Stock $70,000 3. April 6: plaintext Debit Inventory $45,000 Debit Machinery $145,000 Debit Note Payable $94,000 Credit Common Stock $50,000 Credit Paid-In Capital in Excess of Par $140,000 QS 11-6: Accounting for Cash Dividends 1. Declaration on July 15: plaintext Debit Retained Earnings $165,000 Credit Dividends Payable $165,000 2. Date of Record on August 15: No journal entry required. 3. Date of Payment on August 31: plaintext Debit Dividends Payable $165,000 Credit Cash $165,000 QS 11-7: Accounting for Small Stock Dividends 1. Declaration: plaintext Debit Retained Earnings $4,000 Credit Common Stock Dividend Distributable $1,000 Credit Paid-In Capital in Excess of Par $3,000 2. Distribution: plaintext Debit Common Stock Dividend Distributable $1,000 Credit Common Stock $1,000 QS 11-8: Reporting a Small Stock Dividend • Adjust equity by distributing a 10% stock dividend. Retained earnings decreases by the fair value of the stock dividend issued, increasing common stock and paid-in capital. QS 11-9: Accounting for Large Stock Dividends 1. Declaration of 40% Dividend: plaintext Debit Retained Earnings $120,000 Credit Common Stock Dividend Distributable $120,000 QS 11-10: Dividend Features 1. True: Cash and stock dividends reduce retained earnings. 2. True: Dividends payable is recorded at the time a cash dividend is declared. 3. False: The date of record is when stockholders eligible for dividends are identified, not when the dividend is paid. 4. True: Stock dividends help keep the market price of stock affordable. QS 11-11: Preferred Stock Issuance and Dividends 1. Issuance: plaintext Debit Cash $510,000 Credit Preferred Stock $500,000 Credit Paid-In Capital in Excess of Par—Preferred $10,000 2. Dividend Payment: 5,000 shares × $100 par × 7% = $35,000. QS 11-12: Dividend Allocation Between Classes of Shareholders • • Preferred Stockholders: $80,000 for two years’ arrears ($40,000 per year). Common Stockholders: $110,000 - $80,000 = $30,000. QS 11-13 & 11-14: Dividends on Noncumulative and Cumulative Preferred Stock • • Noncumulative: Preferred receives only current year’s dividends. Cumulative: Preferred receives dividends in arrears from prior year if unpaid, with remaining dividends going to common. QS 11-15: Financial Statement Impact of Stock Issuances and Treasury Stock • • Stock Issuance: Increases total assets and total equity. Treasury Stock Purchase: Decreases total assets and total equity. QS 11-16: Determining Shares Outstanding • Shares outstanding = 90,000 issued - 20,000 treasury = 70,000 shares. QS 11-17: Purchase and Sale of Treasury Stock 1. May 3 Purchase: plaintext Debit Treasury Stock $36,000 Credit Cash $36,000 2. November 4 Sale: plaintext Debit Cash $8,500 Credit Treasury Stock $7,650 Credit Paid-In Capital, Treasury Stock $850 QS 11-18: Stockholders’ Equity Impacts 1. 2. 3. 4. Stock Dividend: No effect. New Share Issuance: Increases equity. Treasury Stock Purchase: Decreases equity. Cash Dividends: Decreases equity. QS 11-19: Preparing Stockholders' Equity Section • Organize equity accounts including common stock, preferred stock, paid-in capital, and retained earnings. QS 11-20: Accounting for Changes in Estimates and Error Adjustments 1. Prior Period Adjustment: Mistake in reporting interest. 2. Change in Estimate: Revised useful life of equipment. 3. Prior Period Adjustment: Incorrect revenue reporting. QS 11-21: Determining Retained Earnings Balance • Retained Earnings = $20,000 + $30,000 - $17,000 = $33,000. QS 11-22: Basic Earnings per Share • EPS = $770,000 / 280,000 = $2.75. QS 11-23: Basic Earnings per Share with Preferred Dividends • EPS = ($900,000 - $20,000) / 400,000 = $2.20. QS 11-24: Price-Earnings Ratio • PE Ratio = $20.54 / $3.95 = 5.2. Lower Deck has a higher PE, suggesting higher market expectations. QS 11-25: Dividend Yield • Dividend Yield = $2.34 / $32.50 = 7.2%. Foxburo is likely an income stock due to the higher dividend yield.