SUBJECT:FINANCIAL ACCOUNTING &REPORTING

Task 1: Classes of Corporation: Definition and Example

1. Foreign Corporation- is one organized and incorporated under foreign laws.
Example- Nestlé Philippines
2. Domestic Corporation- is organized and incorporated under Philippine laws.
Example- Ayala Corporation
3. Public Corporation- is one whose shares of stock are traded in public markets.
Example- Jollibee Foods Corporation
4. Private Corporation- is one whose shares are not traded publicly and organized by private
individuals for private purpose, aim or benefit.
Example- CyBERTH Philippines Inc.
5. Quasi–Public Corporation – is a public corporation that has accepted a grant from the
state or a franchise to perform public duties.
Example- Manila Electric Company (Meralco)
6. Stock Corporation– is one whose ownership is divided into units called shares of capital
stock.
Example- LT Group Inc.
7. Non-stock Corporation–is one that is not organized for profit.
Example- Habitat for Humanity Philippines
8. Religious Corporation- is one organized for religious purposes primarily compose of
spiritual persons.
Example- Philippine Benevolent Missionaries Association
9. Lay corporation – is one organized for non-religious purposes.
Example- Aeons Trading

10. Open Corporation (Listed or Not Listed)- is one that is offered to public investor.
Example- 2Go Group, Inc.
11. Close Corporation- is one whose shares are limited to few persons and its shares are not
available for purchase by the public.
Example- Energitech Industrial Corp,
 12. Corporation Sole – consists of only one corporator.
Example- Iglesia ni Cristo
13. One Person Corporation – operated and organized by a one stockholder, who can only be
a natural person, trust or estate.
Example- Smart Transportation and Solution
14. Corporation Aggregate- consist of more than one corporator
Example- Concrete Aggregates Corporation
15. Civil Corporation- one that is established for business or profit.
Example- San Miguel Corporation
16. Eleemosynary Corporation –one that is established for charity.
Example- The Children’s Joy Foundation, Inc.
17. De jure Corporation- is one that exists in fact and law
Example- JG Summit Holdings, Inc.
18. De facto Corporation –is one that exists and not in law.
Example- Far Eastern Lumber and Commercial Co.

TASK 2:

Sandpiper Company has 20,000 shares of 1% cumulative preferred stock of $100 par and
100,000 shares of $50 par common stock. The following amount were distributed as
dividends:

Year 1 $10,000
Year 2 45,000
Year 3 80,000

Determine the dividends per share for preferred and common stock each year.

Solution:
 Year 1 Year 2 Year 3
Amount distributed $10,000 $45,000 $80,000
Preferred Dividend(20,000shs) 10,000 30,000 20,000
Common Dividend(100,000shs) $ 0 $ 15,000 $60,000
Preferred Stock $ 0.5 $ 1.5 $ 1.00
Common Stock 0 $ 0.15 $ 0.60

1% (20,000shs*$100par) = $ 20,000 preferred dividends each year

Dividend in arrear (year 1) $10,000
Year 2 20,000
Total Preferred dividends Year 2 $ 30,000

Preferred Common
Year 1:$10,000/20,000shs= $ 0.5 None
Year 2: $30,000/20,000shs= $ 1.5 $15,000/100,000shs= $ 0.15
Year 3: $20,000/20,000shs= $ 1 $ 60,000/100,000shs= $ 0.60

Task 3:

On March 6, Limerick Corp. issued for cash 15,000 shares of no-par common stock at $30.
On April 13, Limerick issued at par 1,000 shares of 4%, $40 par preferred stock for cash.
On May 19, Limerick issued for cash 15,000 shares of 4%, $40 par preferred stock at $ 42.

Solution: Journal Entries

March 6 Cash $450,000
Common Stock $450,000
(15,000shs* $30= 450,000)
April 13 Cash 40,000
Preferred Stock 40,000
(1,000shs* $40= 40,000)

May 19 Cash 630,000

 Preferred stock 600,000
Paid-in Capital in excess of Par –Preferred Stock 30,000
(15,000sh*$42=630,000)
(15,000sh$40=600,000)
(630,000-600,000=30,000)

Task 4:

The important date in connection with a cash dividends of $75,000 on a corporation’s

common stock are February 26, March 30, and April 2. Journalize the entries required on
each date.

Solution: Journal Entries

February 26 Cash Dividends $ 75,000
Cash Dividends Payable $75,000

March 30 No entry.

April 2 Cash Dividends Payable 75,000

Cash 75,000

Task 5
Vienna Highlights Corporation has 150,000 shares $100 par common stock outstanding.
On June 14, Vienna Highlights a 4% stock dividend to be issued August 15 to stockholders
of record on July1. The market price of the stock was $110 per share on June 14.
Journalize the entries required on June 14, July 1, and August 15.
Solution: Journal Entries
June 14 Stock Dividends $ 660,000
Stock Dividends Distributable $600,000
Paid-in Capital in Excess of par-Common stock 60,00
(150K*4%*$110=660,000)
(6000shs*$100)
($660,000 - $600,000=60,000)
July 1 No entry.

August 15 Stock Dividend Distributable 600,000

Common Stock 600,000

Task 6:
On May 3, Buzz Off Corporation reacquired 3,200 shares of its common stock at $42 per
share. On July 22, Buzz Off sold 2000 of the reacquired shares at $47 per share. On August
30, Buzz off sold the remaining shares at $40 per share.
Journalize the transactions of May 3, July 22, and August 30.

Solution: Journal entries

May 3 Treasury Shares $ 134,400

Cash $134,000
(3,200shs* $42=134,400)

July 22 Cash 94,000

Treasury Stock 84,000
Paid-in Capital from Sales of Treasury Stock 10,000
(2,000shs*$47=94,000)
(2000shs*$42=84,000)
(94,000-84,000=10,000)

August 30 Cash 48,000

Paid-in Capital from Sale of Treasury Stock 2,400
Treasury Stock 50,400
(1,200shs* $40=48,000)
(50,400-48,000=2,400)
(1200shs*$42=50,400)

Task 7 :
Summary: Accounting For Corporation
Corporation complete their accounting cycle in a way similar to a sole proprietorship or a
partnership, except that the resulting balance of income summary in the closing process which
represents net profit or loss is transferred to retained earnings.
The two major components of shareholders' equity consist of share capital (contributed
or paid-in capital) and retained earnings. This share capital reflects the amount of resources
acquired by a corporation as a result of investments and donations or other share capital
transactions. The retained earnings account normally has a credit balance that represent past net
income accumulated by the corporation.
The corporate charter specifies the number of authorized shares, which is the maximum
number of shares that a corporation can issue to its investors as approved by the state in which
the company is incorporated. Once shares are sold to investors, they are considered issued
shares. Shares that are issued and are currently held by investors are called outstanding shares
because they are “out” in the hands of investors. Sometimes a company repurchases its shares
from investors. While these shares are still issued, they are no longer considered to be
outstanding. These repurchased shares are called treasury stock.
 Treasury shares are those shares that have been previously issued but later reacquired
by the corporation. This are not retired shares and are recorded at cost. Upon reissue, if there is
excess of the proceeds from sale over the cost, then it is credited to paid-in capital account from
treasury shares. After the purchase of treasury stock, the stockholders’ equity section of the
balance sheet is shown as a deduction from total stockholders’ equity. Management typically
does not hold treasury stock forever. The company can resell the treasury stock at cost, above
cost, below cost, or retire it.

A company’s corporate charter also specifies the classes of shares and the number of
shares of each class that a company can issue. There are two classes of capital stock—common
stock and preferred stock. When you purchase a company's stock, it basically means buying a
piece of that company. As an investor, you have the option to choose from common or preferred
stock.

As to shareholders, they can make money in two ways. First option is by selling their
stocks for a price that's higher than what they paid for it. Second option is by holding the stocks
and collects its dividends. If a company generates enough profit and declares dividends, then it
will make payments to its shareholders. Companies have the option to determine whether they
will pay dividends at all, and the rate at which shareholders will be paid.

Common stock is a company’s primary class of stock. Common stockholders have the
right to vote on corporate matters, including the selection of corporate directors and other issues
requiring the approval of owners. Each share of stock owned by an investor generally grants the
investor one vote. Common stockholders have the right to share in corporate net income
proportionally through dividends. If the corporation should have to liquidate, common
stockholders have the right to share in any distribution of assets after all creditors and any
preferred stockholders have been paid. If you opt to buy preferred stock, you will get a higher
dividend payment, and have priority over holders of common stock but preferred shareholders do
not have voting rights.

Two of the most important values associated with stock are market value and par value.
Market value of stock is the price at which the stock of a public company trades on the stock
market. This amount does not appears neither in the corporation’s accounting records, nor in the
company’s financial statements. Par value is the value printed on the stock certificates and is
often referred to as a face value. Incorporators typically set the par value at a very small arbitrary
amount because it is used internally for accounting purposes and has no economic significance.
Because par value often has some legal significance, it is considered to be legal capital. Not all
stock has a par value specified in the company’s charter. In most cases, no-par stock is assigned
a stated value by the board of directors, which then becomes the legal capital value. Stock with a
stated value is treated as if the stated value is a par value.
 WRITTEN EXAMINATION

Task 8. True or False. (30 PTS)

False 1. A corporation is a separate entity for accounting purposes but not for legal
purposes.
False 2. A large retained earnings account means that there is cash available to pay
dividends.
True 3. The financial loss that each stockholder in a corporation can incur is usually limited
to the amount invested by the stockholder.
False 4. Under the Internal Revenue Code, corporations are required to pay federal income
taxes.
True 5. Double taxation is a disadvantage of a corporation because the same party has to pay
taxes twice on the income.
False 6. The initial owners of stock of a newly formed corporation are called directors.
False 7. While some businesses have been granted charters under state laws, most businesses
receive their charters under federal laws.
False 8. Organizational expenses are classified as intangible assets on the balance sheet.
True 9. The two main sources of stockholders' equity are investments contributed by
stockholders and net income retained in the business.
False 10. Retained earnings represents past net incomes less past dividends, therefore any
balance in this account would be listed on the income statement.
True 11.The balance in Retained Earnings at the end of the period is created by closing
entries.
False 12. The balance in Retained Earnings should be interpreted as representing surplus cash
left over for dividends.
True 13.A deficit in Retained Earnings is reported in the stockholders' equity section of the
balance sheet.
False 14. When no-par common stock with a stated value is issued for cash, the common stock
account is credited for an amount equal to the cash proceeds.
False 15. The par value of common stock must always be equal to its market value on the date
the stock is issued.
True 16.For accounting purposes, stated value is treated the same way as par value.
False 17. The issuance of common stock affects both paid-in capital and retained earnings.
True 18. The main source of paid-in-capital is from issuing stock.
True 19. The number of shares of outstanding stock is equal to the number
of shares authorized minus the number of shares issued.
 False 20. The amount of capital paid in by the stockholders of the corporation is called legal
capital.
True 21. If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the
dividends per share would be $4.
False 22. If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are
reacquired, the number of outstanding shares is 43,000.
True 23. Preferred stockholders must receive their current year dividends before the common
stockholders can receive any dividends.
False 24. If a corporation is liquidated, preferred stockholders are paid before the creditors and
before the common stockholders.
True 25. Paid-in capital may originate from real estate donated to the corporation.
True 26. The par value of stock is an arbitrary per share amount defined in many states as
legal capital.
True 27. A large public corporation normally uses registrars and transfer agents to maintain
records of the stockholders.
False 28. When common stock is issued in exchange for land, the land should be recorded in
the accounts at the par amount of the stock issued.
False 29. When a corporation issues stock at a premium, it reports the premium as an other
income item on the income statement.
True 30. When no-par stock is issued, the Common Stock account is credited for the selling
price of the stock issued.

Task 9 : Multiple Choice – Theories. (30 PTS)

A 1. Which of the following is not characteristic of a corporation?
a. The financial loss that a stockholder may suffer from owning stock in
a public company is limited.
b. Cash dividends paid by a corporation are deductible as expenses
by the corporation.
c. A corporation can own property in its name.
d. Corporations are required to file federal income tax returns.
 D 2. Characteristics of a corporation include
a. shareholders who are mutual agents
b. direct management by the shareholders (owners)
c. its inability to own property
d. shareholders who have limited liability

B 3. One of the main disadvantages of the corporate form is the

a. professional management
b. double taxation of dividends
c. charter
d. corporation must issue stock

C 4. A disadvantage of the corporate form of business entity is

a. mutual agency for stockholders
b. unlimited liability for stockholders
c. corporations are subject to more governmental regulations
d. the ease of transfer of ownership

A 5. Under the corporate form of business organization

a. ownership rights are easily transferred.
b. a stockholder is personally liable for the debts of the corporation.
c. stockholders’ acts can bind the corporation even though the
stockholders have not been appointed as agents of the corporation.
d. stockholders wishing to sell their corporation shares must get the approval of other
stockholders.

B 6. Those most responsible for the major policy decisions of a corporation are the
a. management.
b. board of directors.
c. employees.
d. stockholders.

A 7. Which one of the following would not be considered an advantage of the

corporate form of organization?
a. Government regulation
b. Separate legal existence
c. Continuous life
d. Limited liability of stockholders

C 8. Which of the following is not true of a corporation?

a. It may enter into binding legal contracts in its own name.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may buy, own, and sell property.
 D 9. The ability of a corporation to obtain capital is
a. less than a partnership.
b. about the same as a partnership.
c. restricted because of the limited life of the corporation.
d. enhanced because of limited liability and ease of share
transferability.

B 10. Which of the following statements concerning taxation is accurate?

a. Corporations pay federal income taxes but not state income taxes.
b. Corporations pay federal and state income taxes.
c. Only the owners must pay taxes on corporate income.
d. Corporations pay income taxes but their owners do not.

A 11. The term deficit is used to refer to a debit balance in which of the
following accounts of a corporation?
a. Retained Earnings
b. Treasury Stock
c. Organizational Expenses
d. Common Stock

C 12. Stockholders' equity

a. is usually equal to cash on hand
b. includes paid-in capital and liabilities
c. includes retained earnings and paid-in capital
d. is shown on the income statement

D 13. The state charter allows a corporation to issue only a certain number of
shares of each class of stock. This amount of stock is called
a. treasury stock
b. issued stock
c. outstanding stock
d. authorized stock

B 14. Which of the following is not a right possessed by common stockholders of a

corporation?
a. the right to vote in the election of the board of directors
b. the right to receive a minimum amount of dividends
c. the right to sell their stock to anyone they choose
d. the right to share in assets upon liquidation

C 15. The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired.
What is the number of shares outstanding?
a. 5,000
b. 45,000
 c. 40,000
d. 50,000

TASK 10
1.A company had stock outstanding as follows during each of its first three years of
operations: 2,500 shares of 10%, $100 par, cumulative preferred stock and 50,000 shares of
$10 par common stock. The amounts distributed as dividends are presented below.
Determine the total and per share dividends for each class of stock for each year by
completing the schedule.
Preferred Common
Year Dividends Total Per Share Total Per Share
1 $10,000 10,000 $4 _________ None
2 25,000 25,000 $10 _________ None
3 60,000 40,000 $16 _________ $ 0.4

Solutions:
 Year 1 Year 2 Year 3
Amount distributed $10,000 $25,000 $60,000
Preferred Dividend(2,500shs) 10,000 25,000 40,000*
Common Dividend(50,000shs) $ 0 $ 0 $20,000
Dividend per share:
Preferred Stock $4 $ 10 $ 16
Common Stock 0 0 $ 0.4

10%( 2500shs*$100)= $25,000 annual dividends owed to preferred shareholders

*Dividend in arrear Year 1 $15,000
Year 3 25,000
Total dividends for year 3 $ 40,000
Preferred Common
Year 1:$10,000/2,500shs= $4 None
Year 2: $25,000/2,500shs= $10 None
Year 3: $40,000/2,500shs= $16 $0.4

2.On April 1, 10,000 shares of $5 par common stock were issued at $22, and on April 7,
5,000 shares of $50 par preferred stock were issued at $104. Journalize the entries for April
1 and 7.

Solutions: Journal Entries

April 1 Cash $ 220,000
Common Stock $ 50,000
Paid-in Capital in Excess of Par-Common Stock 170,000
(10,000shs*$22=220,000)
(10,000sh*$5=50,000)
($220,000-50,000=170,000)

April 7 Cash 520,000

Preferred Stock 250,000
Paid-in Capital in excess of Par- Preferred Stock 270,000
(5,000shs*$104=520,000)
(5,000shs*$50=250,000)
($520,000-250,000=270,000)
3. On May 10, a company issued for cash 1,500 shares of no-par common stock (with a
stated value of $2) at $14, and on May 15, it issued for cash 2,000 shares of $15 par
preferred stock at $58.
Journalize the entries for May 10 and 15, assuming that the common stock is to be
credited with the stated value.

Solution: Journal Entries

May 10 Cash $21,000
Common Stock $ 3,000
Paid-in Capital in excess of Stated Value 17,000
(1500shs*$14=21,000)
(1500shs*$2=3000)
(21,000-3000=17,000)
May 15 Cash 116,000
Preferred Stock 30,000
Paid-in Capital in excess of Par-Preferred Stock 86,000
(2000shs*$58=116,000)
(2000sh*$15=30,000)
($116,000-30,000=86,000)
4.On February 1 of the current year, Motor, Inc. issued 500 shares of $2 par common stock
to an attorney in return for preparing and filing the Articles of Incorporation. The value of
the services is $8,500. Journalize this transaction.

Solution: Journal Entries

February 1 Organizational Services $ 8,500

Common Stock $ 1,000
Paid-in Capital in Excess of Par- Common Stock 7,500
(500shs*$2=1000)
($8500-1000=7500)

5.On April 10, a company acquired land in exchange for 1,000 shares of $20 par common
stock with a current market price of $73. Journalize this transaction.

Solution: Journal Entries

April 10 Land $ 73,000

Common Stock $20,000
Paid-in Capital in excess of Par-Common Stock 53,000
(1000shs*$73=73,000)
 (1000shs*$20=20,000)
($73,000-20,000=50,000)

6. Sabas Company has 20,000 shares of $100 par, 1% non-cumulative preferred stock and
100,000 shares of $50 par common stock. The following amounts were distributed as
dividends:

Year 1: $10,000
Year 2: 15,000
Year 3: 90,000

Determine the dividends per share for preferred and common stock for each year.

Solutions:
Year 1 Year 2 Year 3
Amount distributed $10,000 $15,000 $90,000
Preferred Dividend(20000shs) 10,000 15,000 20,000
Common Dividend(100,000shs) $ 0 $ 0 $70,000
Dividend per share:
Preferred Stock $ 0.5 $ 0.75 $1
Common Stock 0 0 $ 0.7

1%( 20,000shs*$100)= $20,000annual dividends owed to preferred shareholders

Preferred Common
Year 1:$10,000/20,000shs= $0.5 None
Year 2: $15,000/20,000shs= $0.75 None
Year 3: $20,000/20,000shs= $1 $70,000/100,000shs=$ 0.7

7. Sabas Company has 20,000 shares of $100 par, 1% cumulative preferred stock and
100,000 shares of $50 par common stock. The following amounts were distributed as
dividends:
Year 1: $10,000
Year 2: 15,000
Year 3: 90,000
Determine the dividends per share for preferred and common stock for each year.
Solution:
 Year 1 Year 2 Year 3
Amount distributed $10,000 $15,000 $90,000
Preferred Dividend(20000shs) 10,000 15,000 35,000*
Common Dividend(100,000shs) $ 0 $ 0 $55,000
Dividend per share:
Preferred Stock $ 0.5 $ 0.75 $ 1.75
Common Stock 0 0 $ 0.55

1% ( 2000shs*$100)= $20,000 annual dividends owed to preferred shareholders

*Dividend in arrear Year 1 $10,000
Dividend in arrear Year 2 5,000
Year 3 20,000
Total dividends for year 3 $ 35,000

8. Sabas Company has 40,000 shares of $100 par, 1% preferred stock and 100,000 shares of
$50 par common stock. The following amounts were distributed as dividends:
Year 1: $ 50,000
Year 2: 90,000
Year 3: 130,000
Determine the dividends per share for preferred and common stock for each year.
Solution: Year 1 Year 2 Year 3
Amount distributed $50,000 $90,000 $130,000
Preferred Dividend(40000shs) 40,000 40,000 40,000
Common Dividend(100,000shs) $10,000 $ 50,000 $ 90,000
Dividend per share
Preferred Stock $1 $1 $1
Common Stock $ 0.1 $0.5 $ 0.9
1%(40,000shs*$100 )= $40,000 annual dividends owed to preferred shareholders
Preferred Common
Year 1:$40,000/40,000shs= $ 1 None
Year 2: $40,000/40,000shs= $ 1 None
Year 3: $40,000/40,000shs= $ 1 $90,000/100,000shs=$ 0.9

9. A corporation, which had 18,000 shares of common stock outstanding, declared a 3-for-1
stock split.
(a) What will be the number of shares outstanding after the split?
(b) If the common stock had a market price of $240 per share before the stock split, what
would be an approximate market price per share after the split?
(c) Journalize the entry to record the stock split.
Solution:

a) 18,000 shares x 3 = 54,000 shares after split.

b) $240 divided by 3 = $80/share after split.
c) There is no entry required.

10. On May 1, 10,000 shares of $10 par common stock were issued at $30, and on May 7,
5,000 shares of $50 par preferred stock were issued at $111. Journalize the entries for May
1 and May 7.
Solution:
May 1 Cash $300,000
Common Stock $100,000
Paid-in Capital in Excess of Par-common Stock 200,000
(10,000shs*$30=300,000)
(10,000shs*$10=100,000)
(300,000-100,000=200,000)
May 7 Cash 555,000
Preferred Stock 250,000
Paid-in capital in Excess of Par-preferred Stock 305,000
(5,000shs*$111=555,000)
(5,000shs*$50=250,000)
(555,000-250,000=305,000)

11. Using the following accounts and balances, prepare the Stockholders’ Equity section of
the balance sheet. Fifty thousand shares of common stock are authorized, and 5,000 shares
have been reacquired.
Common Stock, $50 par $1,500,000
Paid-In Capital in Excess of Par 250,000
Paid in Capital from Sale of Treasury Stock 42,000
Retained Earnings 4,350,000
Treasury Stock 155,000
Solution:
Stockholders’ Equity
Paid-in Capital:
Common Stock, $50 par
(50,000 shares authorized,
30,000 shares issued) $1,500,000
Excess of Par 250,000 $1,750,000
From Sale of treasury stock 42,000
Total paid-in capital $1,792,000
Retained Earnings 4,350,000
Total $6,142,000
Less: Treasury Stock (5000shs) 155,000
Total Stockholders’ Equity $5,987,000
12. Morocco Inc. reported the following results for the year ending April 30, 2012:
Retained earnings, May 1, 2011 $2,870,000
Net income 530,000
Cash dividends declared 80,000
Stock dividends declared 220,000
Prepare a retained earnings statement for the fiscal year ended April 30, 2012.
Solution:
Morroco Inc.
Retained Earnings Statement
For the year ended April 30, 2012
Retained Earnings, May 1, 2011 $ 2, 870,000
Net Income $530,000
Less: Dividends declared 300,000
Increased in Retained Earnings, 230,000
Retained Earnings, April 30, 2012 $ 3,100,000

13. Indicate whether the following actions would (+) increase, (-) decrease, or (0) not affect
a company's total assets, liabilities, and stockholders' equity.

Stockholders'
Assets Liabilities Equity
(1) Declaring a cash dividend 0 + -
(2) Paying the cash dividend declared in (1) - - 0
(3) Declaring a stock dividend 0 + _ -
(4) Issuing stock certificates for the stock
dividend declared in (3) 0 0 0

14. Macy Company has 10,000 shares of 2% cumulative preferred stock of $50 par and
25,000 shares of $75 par common stock. The following amounts were distributed as
dividends:

Year 1 $30,000
Year 2 6,000
Year 3 80,000
Required:
Determine the dividends per share for preferred and common stock for each year.
Solution:
Year 1 Year 2 Year 3
Amount distributed $30,000 $ 6,000 $80,000
Preferred Dividend(10000shs) 10,000 6,000 14,000*
Common Dividend(25,000shs) $ 20,000 $ 0 $66,000
Dividend per share:
Preferred Stock $1 $ 0.6 $ 1.4
Common Stock $ 0.8 0 $ 2.64

2%(10,000shs*$50)=$10,000 annual dividends owed to preferred shareholders

*Dividend in arrear Year 2 $4,000
Year 3 10,000
Total dividend year 3 $ 14,000

Preferred Common
Year 1:$10,000/10,000shs= $ 1 $20,000/25,0000shs=$ 0.8
Year 2: $6,000/10,000shs= $ 1 None
Year 3: $14,000/10,000shs= $ 1 $66,000/25,000shs=$ 2.64

15. Future Sources, Inc. reported the following results for the year ending July 31, 2012:

Retained earnings, August 1, 2011 $875,000

Net income 260,000
Cash dividends declared 120,000
Stock dividends declared 100,000

Solution:
For the year ended July 31, 2012
Retained Earnings, beginning $ 875,000
Net Income $260,000
Less: Cash dividends 120,000
Stock dividends 100,000 40,000
Retained Earnings, Ending $915,000

16. Using the following information, prepare the Stockholders’ Equity section of the
balance sheet. Seventy thousand shares of common stock are authorized and 7,000 shares
have been reacquired.
Common Stock, $75 par $4,725,000
Paid-in Capital in Excess of Par 679,000
 Paid-in Capital from Sale of Treasury 25,200
Stock
Retained Earnings 2,032,800
Treasury Stock 600,000

Solution:
Stockholders’ Equity
Paid-in Capital:
Common Stock, $75 par
(70,000 shares authorized,
63,000 shares issued) $4,725,000
Excess of Par 679,000 $5,404,000
From Sale of treasury stock 25,200
Total paid-in capital $5,429,200
Retained Earnings 2,032,800
Total $7,462,000
Less: Treasury Stock (7000shs) 600,000
Total Stockholders’ Equity $6,862,000

17. The following account balances appear on the balance sheet of Osgood Industries:
Common Stock (300,000 shares authorized, $100 par): $10,000,000
Paid-in Capital in Excess of Par – Common Stock: $2,000,000;
Retained earnings: $45,000,000.
The board of directors declared a 2% stock dividend when the market price of the stock
was $135 a share. Osgood reported no income or loss for the current year.

Required:
(1) Journalize the entries to record
a. the declaration of the dividend, capitalizing an amount equal to market value; and
b. the issuance of the stock certificates.
(2) Determine the following amounts before the stock dividend was declared:
a. Total paid-in capital;
b. Total retained earnings; and
c. Total stockholders’ equity.
(3) Determine the following amounts after the stock dividend was declared and closing
entries were recorded at the end of the year:
a. Total paid-in capital;
b. Total retained earnings; and
c. Total stockholders’ equity.
Solutions:
1.a) Stock Dividends $270,000
Stock Dividends Distributable $200,000
Paid-in Capital in Excess of Par-Common Stock 70,000
[($10,000,000/$100)*135]*2%=270,000
2000shs*$100=200,000
270,000-200,000=70,000
b) Stock Dividend distributable 200,000
Common Stock 200,000

2. a) Paid-in Capital:
Common Stock, $100
(300,000shares, authorized
100,000shares, issued) $10,000,000
Excess of par-common Stock 2,000,000
Total Paid in Capital $12,000,000

B) Total retained earnings= $ 45,000,000

C) Paid-in Capital:
Common Stock, $100
(300,000shares, authorized
100,000shares, issued) $10,000,000
Excess of par-common Stock 2,000,000
Total Paid in Capital $12,000,000
Retained Earnings 45,000,000
Total Stockholders’ Equity $ 57,000,000

3. a) Paid-in Capital:
Common Stock, $100
(300,000shares, authorized
100,000shares issued) $10,000,000
Stock dividends 270,000
Excess of par-common Stock 2,000,000
Total Paid in Capital $12,270,000

b) Retained Earnings $ 45,000,000

Less: Stock Dividend 270,000
 Total Retained Earnings $ 44,730,000

c) Paid-in Capital:
Common Stock, $100
(300,000shares, authorized
100,000shares issued) $10,000,000
Stock dividends 270,000
Excess of par-common Stock 2,000,000
Total Paid in Capital $12,270,000
Retained Earnings 45,000,000
Less: Stock Dividend 270,000
Total Retained Earnings $ 44,730,000
Total Shareholders’ Equity $ 57,000,000

18. On March 4 of the current year, Barefoot Bay, Inc. reacquired 5,000 shares of its
common stock at $89 per share. On August 7, Barefoot Bay sold 3,500 of the reacquired
shares at $100 per share. The remaining 1,500 shares were sold at $88 per share on
November 29.
Required:
(1) Journalize the transaction of March 4, August 7, and November 29.
(2) What is the balance in Paid-in Capital from Sale of Treasury Stock on December 31, of
the current year?
(3) Why might Barefoot Bay Inc. have purchased the treasury stock?

Solution:
1) March 4 treasury Stock $445,000
Cash $445,000
August 7 Cash 350,000
Treasury Stock 311,500
Paid-in Capital from sale of Treasury Stock 38,500
(3500shs*$100=350,000)
(3500shs*$89=311,500)
(350,000-311,500=38,500)
Nov 9 Cash 132,000
Paid-in Capital from Sale of Treasury Stock 1,500
Treasury Stock 133,500
(1500shs*$88=132,000)
(1500shs*89=133,500)
(133,500-132,000=1,500)
2) $37,000 Credit
 3) Barefoot Bay may have purchased the stock to support the market price of the stock, to
provide shares for resale to employees, or for reissuance to employees as a bonus
according to stock purchase agreement.

19. Marcos Company, which had 35,000 shares of common stock outstanding, declared a 4-
for-1 stock split.
Required:
(1) What will be the number of shares outstanding after the split?
(2) If the common stock had a market price of $280 per share before the stock split, what
would be an approximate market price per share after the split?

Solution:
1) 35,000 *4= 140,000 shares
2) $280/4 = $70 per share

20. Selected transactions completed by Breezeway Construction during the current fiscal
year are as follows:
February 3 Split the common stock 2 for 1 and reduced the par from $40 to $20 per
share. After the split there were 250,000 common shares outstanding.
April 10 Declared semiannual dividends of $1.50 on 18,000 shares of preferred
stock and $0.08 on the common stock to stockholders of record on May
10, payable on June 9.
June 9 Paid the cash dividends.
October 10 Declared semiannual dividends of $1.50 on the preferred stock and
$0.04 on the common stock (before the stock dividend). In addition, a
2% common stock dividend was declared on the common stock
outstanding. The fair market value of the common stock is estimated at
$36.
December 9 Paid the cash dividends and issued the certificates for the common stock
dividend.
Solution:

Feb.3 No entry required.

Apr.10 Cash Dividends 47,000
Cash Dividends Payable 47,000
(18Kshs*$1.50)+(250Kshs*$0.08)]
= $27,000 + $20,000 =$47,000

June9 Cash Dividends Payable 47,000

Cash 47,000
Oct.10 Cash Dividends 37,000
Cash Dividends Payable 37,000
(18Kshs*$1.50) + (250Kshs*$0.04)]
= $27,000 + $10,000 = $37,000

10 Stock Dividends 180,000

Stock Dividends Distributable 100,000
Paid-In Capital in Excess of Par—Common Stock 80,000
(250Kshs*2%*$36) = $180,000
(5,000*$20)=$100,000
(180,000-100,000=80,000)

Dec.9 Cash Dividends Payable 37,000

Cash 37,000

9 Stock Dividends Distributable 100,000

Common Stock 100,000