Accounting 25th Edition Solution
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Complete Answer (Next Page)
CHAPTER 13
CORPORATIONS: ORGANIZATION, STOCK
TRANSACTIONS, AND DIVIDENDS
, DISCUSSION QUESTIONS
1. No. Common stock with a higher par is not necessarily a better investment than common
stock with a lower par because par is an amount assigned to the shares.
2. The broker is not correct. Corporations are not legally liable to pay dividends until the
dividends are declared. If the company that issued the preferred stock has operating losses,
it could omit dividends, first, on its common stock and, later, on its preferred stock.
3. The company may not have had enough cash on hand to pay a dividend on the common
stock, or resources may be needed for plant expansion, replacement of facilities, payment of
liabilities, etc.
4. a. No change.
b. Total equity is the same.
5. a. Current liability
b. Stockholders’ equity
6. a. It has no effect on revenue or expense.
b. It reduces stockholders’ equity by $3,000,000.
7. a. It has no effect on revenue.
b. It increases stockholders’ equity by $3,750,000.
8. The three classifications of restrictions on retained earnings are legal, contractual, and
discretionary. Restrictions are normally reported in the notes to the financial statements.
9. Such prior period adjustments should be reported as an adjustment to the beginning balance
of retained earnings.
10. The primary purpose of a stock split is to bring about a reduction in the market price per
share and thus to encourage more investors to buy the company’s shares.
13-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PRACTICE EXERCISES
PE 13–1A
Year 1 Year 2 Year 3
Amount distributed………………………………… $30,000 $90,000 $125,000
Preferred dividend (40,000 shares)…………… 30,000 66,000* 48,000
Common dividend (50,000 shares)……………… $ 0 $24,000 $ 77,000
* $18,000 + $48,000
Dividends per share:
Preferred stock………………………………… $0.75 $1.65 $1.20
Common stock………………………………… None $0.48 $1.54
PE 13–1B
Year 1 Year 2 Year 3
Amount distributed……………………………… $21,600 $4,000 $100,800
Preferred dividend (16,000 shares)…………… 6,400 4,000 8,800*
Common dividend (80,000 shares)…………… $15,200 $ 0 $ 92,000
* $2,400 + $6,400
Dividends per share:
Preferred stock………………………………… $0.40 $0.25 $0.55
Common stock………………………………… $0.19 None $1.15
PE 13–2A
May 10 Cash (90,000 shares × $42) 3,780,000
Common Stock (90,000 shares × $30) 2,700,000
Paid-In Capital in Excess of Stated Value—
Common Stock [90,000 shares × ($42 – $30)] 1,080,000
Sept. 3 Cash 900,000
Preferred Stock (36,000 shares × $25) 900,000
Dec. 1 Cash (14,000 shares × $33) 462,000
Preferred Stock (14,000 shares × $25) 350,000
Paid-In Capital in Excess of Par—
Preferred Stock [14,000 shares × ($33 – $25)] 112,000
13-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13–2B
Jan. 22 Cash 720,000
Common Stock (180,000 shares × $4) 720,000
Feb. 14 Cash 2,420,000
Preferred Stock (44,000 shares × $55) 2,420,000
Aug. 30 Cash (9,000 shares × $60) 540,000
Preferred Stock (9,000 shares × $55) 495,000
Paid-In Capital in Excess of Par—
Preferred Stock [9,000 shares × ($60 – $55)] 45,000
PE 13–3A
Aug. 1 Cash Dividends 1,250,000
Cash Dividends Payable 1,250,000
Oct. 15 No entry required.
Nov. 14 Cash Dividends Payable 1,250,000
Cash 1,250,000
PE 13–3B
Feb. 1 Cash Dividends 480,000
Cash Dividends Payable 480,000
Mar. 18 No entry required.
May 1 Cash Dividends Payable 480,000
Cash 480,000
13-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
(Download complete and 100% accurate work written as per
requirements)
Topic: _________________
Student Name: __________
Course Title: ____________
Instructor: ______________
Date of submission: _______
For any problem feel free to message me on “Stuvia”
Complete Answer (Next Page)
CHAPTER 13
CORPORATIONS: ORGANIZATION, STOCK
TRANSACTIONS, AND DIVIDENDS
, DISCUSSION QUESTIONS
1. No. Common stock with a higher par is not necessarily a better investment than common
stock with a lower par because par is an amount assigned to the shares.
2. The broker is not correct. Corporations are not legally liable to pay dividends until the
dividends are declared. If the company that issued the preferred stock has operating losses,
it could omit dividends, first, on its common stock and, later, on its preferred stock.
3. The company may not have had enough cash on hand to pay a dividend on the common
stock, or resources may be needed for plant expansion, replacement of facilities, payment of
liabilities, etc.
4. a. No change.
b. Total equity is the same.
5. a. Current liability
b. Stockholders’ equity
6. a. It has no effect on revenue or expense.
b. It reduces stockholders’ equity by $3,000,000.
7. a. It has no effect on revenue.
b. It increases stockholders’ equity by $3,750,000.
8. The three classifications of restrictions on retained earnings are legal, contractual, and
discretionary. Restrictions are normally reported in the notes to the financial statements.
9. Such prior period adjustments should be reported as an adjustment to the beginning balance
of retained earnings.
10. The primary purpose of a stock split is to bring about a reduction in the market price per
share and thus to encourage more investors to buy the company’s shares.
13-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PRACTICE EXERCISES
PE 13–1A
Year 1 Year 2 Year 3
Amount distributed………………………………… $30,000 $90,000 $125,000
Preferred dividend (40,000 shares)…………… 30,000 66,000* 48,000
Common dividend (50,000 shares)……………… $ 0 $24,000 $ 77,000
* $18,000 + $48,000
Dividends per share:
Preferred stock………………………………… $0.75 $1.65 $1.20
Common stock………………………………… None $0.48 $1.54
PE 13–1B
Year 1 Year 2 Year 3
Amount distributed……………………………… $21,600 $4,000 $100,800
Preferred dividend (16,000 shares)…………… 6,400 4,000 8,800*
Common dividend (80,000 shares)…………… $15,200 $ 0 $ 92,000
* $2,400 + $6,400
Dividends per share:
Preferred stock………………………………… $0.40 $0.25 $0.55
Common stock………………………………… $0.19 None $1.15
PE 13–2A
May 10 Cash (90,000 shares × $42) 3,780,000
Common Stock (90,000 shares × $30) 2,700,000
Paid-In Capital in Excess of Stated Value—
Common Stock [90,000 shares × ($42 – $30)] 1,080,000
Sept. 3 Cash 900,000
Preferred Stock (36,000 shares × $25) 900,000
Dec. 1 Cash (14,000 shares × $33) 462,000
Preferred Stock (14,000 shares × $25) 350,000
Paid-In Capital in Excess of Par—
Preferred Stock [14,000 shares × ($33 – $25)] 112,000
13-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
PE 13–2B
Jan. 22 Cash 720,000
Common Stock (180,000 shares × $4) 720,000
Feb. 14 Cash 2,420,000
Preferred Stock (44,000 shares × $55) 2,420,000
Aug. 30 Cash (9,000 shares × $60) 540,000
Preferred Stock (9,000 shares × $55) 495,000
Paid-In Capital in Excess of Par—
Preferred Stock [9,000 shares × ($60 – $55)] 45,000
PE 13–3A
Aug. 1 Cash Dividends 1,250,000
Cash Dividends Payable 1,250,000
Oct. 15 No entry required.
Nov. 14 Cash Dividends Payable 1,250,000
Cash 1,250,000
PE 13–3B
Feb. 1 Cash Dividends 480,000
Cash Dividends Payable 480,000
Mar. 18 No entry required.
May 1 Cash Dividends Payable 480,000
Cash 480,000
13-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
