Do It! Review 11-1
Your answer is correct.
Indicate whether each of the following statements is true or false.
1. The corporation is an entity separate and distinct from its owners.
True
2. The liability of stockholders is normally limited to their investment in the corporation.
True
3. The relative lack of government regulation is an advantage of the corporate form of
business. False
4. There is no journal entry to record the authorization of capital stock.
True
5. No-par value stock is quite rare today.
False
Exercise 11-5
Your answer is correct.
Garcia Corporation recently hired a new accountant with extensive experience in accounting for
partnerships. Because of the pressure of the new job, the accountant was unable to review what he
had learned earlier about corporation accounting. During the first month, he made the following
entries for the corporation’s capital stock.
May 2 Cash 111,150
Capital Stock 111,150
(Issued 7,410 shares of $11 par value common stock at $15 per share)
10 Cash 617,610
Capital Stock 617,610
(Issued 12,110 shares of $19 par value preferred stock at $51 per
share)
15 Capital Stock 9,380
Cash 9,380
(Purchased 670 shares of common stock for the treasury at $14 per
share)
On the basis of the explanation for each entry, prepare the entries that should have been made for the
capital stock transactions. (Record entries in the order displayed in the problem statement.
Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Date Account Titles and Explanation Debit Credit
, May 2 Cash 111150
Common Stock 81510
Paid-in Capital 29640
May 10 Cash 617610
Preferred Stoc 230090
Paid-in Capital 387520
May 15 Treasury Stoc 9380
Cash 9380
Exercise 11-7
Your answer is correct.
On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common
stock $656,800 and retained earnings $420,800.
Pele is considering the following two courses of action:
(1) Declaring a 5% stock dividend on the 82,100 $8 par value shares outstanding
(2) Effecting a 2-for-1 stock split that will reduce par value to $4 per share.
The current market price is $17 per share.
Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’
equity and outstanding shares.
Pele Company’s
Balance Sheet
Before Action After Stock Dividend After Stock Split
Stockholders’ equity
$ $ $
Paid-in capital 656800 726585 656800
Retained earnings 420800 351015 420800
$ $ $
Total stockholders’ equity 1077600 1077600 1077600
Outstanding shares 82100 86205 164200
Broadening Your Perspective 11-1
The stockholders’ equity section of Tootsie Roll Industries’ balance sheet is shown in the
Consolidated Statement of Financial Position. (Note that Tootsie Roll has two classes of
, common stock. To answer the following questions, add the two classes of stock
together.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per
share data)
For the year ended December 31,
2011 2010 2009
Net product sales $528,369 $517,149 $495,592
Rental and royalty revenue 4,136 4,299 3,739
Total revenue 532,505 521,448 499,331
Product cost of goods sold 365,225 349,334 319,775
Rental and royalty cost 1,038 1,088 852
Total costs 366,263 350,422 320,627
Product gross margin 163,144 167,815 175,817
Rental and royalty gross margin 3,098 3,211 2,887
Total gross margin 166,242 171,026 178,704
Selling, marketing and administrative expenses 108,276 106,316 103,755
Impairment charges — — 14,000
Earnings from operations 57,966 64,710 60,949
Other income (expense), net 2,946 8,358 2,100
Earnings before income taxes 60,912 73,068 63,049
Provision for income taxes 16,974 20,005 9,892
Net earnings $43,938 $53,063 $53,157
Net earnings $43,938 $53,063 $53,157
Other comprehensive earnings (loss) (8,740) 1,183 2,845
Comprehensive earnings $35,198 $54,246 $56,002
Retained earnings at beginning of year. $135,866 $147,687 $144,949
Net earnings 43,938 53,063 53,157
Cash dividends (18,360) (18,078) (17,790)
Stock dividends (47,175) (46,806) (32,629)
Retained earnings at end of year $114,269 $135,866 $147,687
Earnings per share $0.76 $0.90 $0.89
Average Common and Class B Common shares
57,892 58,685 59,425
outstanding
(The accompanying notes are an integral part of these statements.)
CONSOLIDATED STATEMENTS OF
Financial Position
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share
data)
Assets December 31,
2011 2010
CURRENT ASSETS:
Cash and cash equivalents $78,612 $115,976
Investments 10,895 7,996
Accounts receivable trade, less allowances of $1,731 and $1,531 41,895 37,394
Other receivables 3,391 9,961
Inventories:
Finished goods and work-in-process 42,676 35,416
Your answer is correct.
Indicate whether each of the following statements is true or false.
1. The corporation is an entity separate and distinct from its owners.
True
2. The liability of stockholders is normally limited to their investment in the corporation.
True
3. The relative lack of government regulation is an advantage of the corporate form of
business. False
4. There is no journal entry to record the authorization of capital stock.
True
5. No-par value stock is quite rare today.
False
Exercise 11-5
Your answer is correct.
Garcia Corporation recently hired a new accountant with extensive experience in accounting for
partnerships. Because of the pressure of the new job, the accountant was unable to review what he
had learned earlier about corporation accounting. During the first month, he made the following
entries for the corporation’s capital stock.
May 2 Cash 111,150
Capital Stock 111,150
(Issued 7,410 shares of $11 par value common stock at $15 per share)
10 Cash 617,610
Capital Stock 617,610
(Issued 12,110 shares of $19 par value preferred stock at $51 per
share)
15 Capital Stock 9,380
Cash 9,380
(Purchased 670 shares of common stock for the treasury at $14 per
share)
On the basis of the explanation for each entry, prepare the entries that should have been made for the
capital stock transactions. (Record entries in the order displayed in the problem statement.
Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Date Account Titles and Explanation Debit Credit
, May 2 Cash 111150
Common Stock 81510
Paid-in Capital 29640
May 10 Cash 617610
Preferred Stoc 230090
Paid-in Capital 387520
May 15 Treasury Stoc 9380
Cash 9380
Exercise 11-7
Your answer is correct.
On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common
stock $656,800 and retained earnings $420,800.
Pele is considering the following two courses of action:
(1) Declaring a 5% stock dividend on the 82,100 $8 par value shares outstanding
(2) Effecting a 2-for-1 stock split that will reduce par value to $4 per share.
The current market price is $17 per share.
Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’
equity and outstanding shares.
Pele Company’s
Balance Sheet
Before Action After Stock Dividend After Stock Split
Stockholders’ equity
$ $ $
Paid-in capital 656800 726585 656800
Retained earnings 420800 351015 420800
$ $ $
Total stockholders’ equity 1077600 1077600 1077600
Outstanding shares 82100 86205 164200
Broadening Your Perspective 11-1
The stockholders’ equity section of Tootsie Roll Industries’ balance sheet is shown in the
Consolidated Statement of Financial Position. (Note that Tootsie Roll has two classes of
, common stock. To answer the following questions, add the two classes of stock
together.)
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per
share data)
For the year ended December 31,
2011 2010 2009
Net product sales $528,369 $517,149 $495,592
Rental and royalty revenue 4,136 4,299 3,739
Total revenue 532,505 521,448 499,331
Product cost of goods sold 365,225 349,334 319,775
Rental and royalty cost 1,038 1,088 852
Total costs 366,263 350,422 320,627
Product gross margin 163,144 167,815 175,817
Rental and royalty gross margin 3,098 3,211 2,887
Total gross margin 166,242 171,026 178,704
Selling, marketing and administrative expenses 108,276 106,316 103,755
Impairment charges — — 14,000
Earnings from operations 57,966 64,710 60,949
Other income (expense), net 2,946 8,358 2,100
Earnings before income taxes 60,912 73,068 63,049
Provision for income taxes 16,974 20,005 9,892
Net earnings $43,938 $53,063 $53,157
Net earnings $43,938 $53,063 $53,157
Other comprehensive earnings (loss) (8,740) 1,183 2,845
Comprehensive earnings $35,198 $54,246 $56,002
Retained earnings at beginning of year. $135,866 $147,687 $144,949
Net earnings 43,938 53,063 53,157
Cash dividends (18,360) (18,078) (17,790)
Stock dividends (47,175) (46,806) (32,629)
Retained earnings at end of year $114,269 $135,866 $147,687
Earnings per share $0.76 $0.90 $0.89
Average Common and Class B Common shares
57,892 58,685 59,425
outstanding
(The accompanying notes are an integral part of these statements.)
CONSOLIDATED STATEMENTS OF
Financial Position
TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share
data)
Assets December 31,
2011 2010
CURRENT ASSETS:
Cash and cash equivalents $78,612 $115,976
Investments 10,895 7,996
Accounts receivable trade, less allowances of $1,731 and $1,531 41,895 37,394
Other receivables 3,391 9,961
Inventories:
Finished goods and work-in-process 42,676 35,416
