Acct. Puc.

Chapter 14
SOLUTIONS TO EXERCISES

EXERCISE 14-1 (a) June 15 July 10 Dec. 15 Retained Earnings (120,000 X $1) ........ Dividends Payable ........................ Dividends Payable ................................ Cash ............................................... Retained Earnings (122,000 X $1.20) ... Dividends Payable ........................ 120,000 120,000 120,000 120,000 146,400 146,400(b) In the retained earnings statement, dividends of $266,400 will be deducted. In the balance sheet, Dividends Payable of $146,400 will be reported as a current liability.

EXERCISE 14-2 (a) Total dividend declaration Allocation to preferred stock Remainder to common stock (b) Total dividend declaration Allocation to preferred stock Remainder to common stock
1

2007 $6,000 6,000 $ 0 2007$6,000 6,000 $ 0

2008 $12,000 7,000 $ 5,000 2008 $12,000 10,0001 $ 2,000

2009 $28,000 7,000 $21,000 2009 $28,000 8,000 $20,000

Dividends in arrears for Year 1, $2,000 + current dividend for Year 2, $8,000.

(c) Dec. 31

Retained Earnings ................................... Dividends Payable ...........................

28,000 28,000

EXERCISE 14-3 (a) Retained Earnings (21,000*X $18) ........................ Common Stock Dividends Distributable ....... (21,000 X $10) Paid-in Capital in Excess of Par Value .......... (21,000 X $8) *[($1,000,000 ÷ $10) + 40,000] X 15%. (b) Retained Earnings (36,000* X $20) ........................ Common Stock Dividends Distributable ....... (36,000 X $5) Paid-in Capital in Excess of Par Value .......... (36,000 X $15) *[($1,000,000 ÷ 5)+ 40,000] X 15%. EXERCISE 14-15
2008 Earnings per share 2007 = $2.70

378,000 210,000 168,000

720,000 180,000 540,000

$290, 000 – $20, 000 100, 000

$200, 000 – $20, 000 80, 000 $200, 000 – $20, 000 $900, 000

= $2.25

Return on common stockholders’ equity

$290, 000 – $20, 000 $1, 200,000

= 22.5%

= 20.0%

EXERCISE 14-16
2008 Earnings per share 2007 = $1.80

$290, 000– $20, 000 150, 000

$248, 000 – $20, 000 180, 000 $248, 000 – $20, 000 $1, 900,000

= $1.27

Return on common stockholders’ equity

$290, 000 – $20, 000 $1, 800,000

= 15.0%

= 12.0%

SOLUTIONS TO PROBLEMS
PROBLEM 14-1A

(a) Feb. Mar. Apr.

1 1 1

Retained Earnings (60,000 X $1)........... Dividends Payable ......................... Dividends Payable................................. Cash ................................................ Memo—two-for-one stock split increases number of shares to 120,000 = (60,000 X 2) and reduces par value to $10 per share. Retained Earnings (12,000 X $13) ......... Common Stock Dividends Distributable (12,000 X $10)....... Paid-in Capital in Excess of Par Value (12,000 X $3) .............. Common Stock Dividends Distributable...................................... Common Stock............................... Retained Earnings (132,000 X $.50) ...... Dividends Payable ......................... Income Summary................................... Retained Earnings .........................

60,000 60,000 60,000 60,000

July

1

156,000 120,000 36,000 120,000 120,000 66,000 66,000 350,000 350,000

31

Dec.

1 31

(b)Common Stock
Date Jan. Apr. 1 1 Explanation Balance 2 for 1 split—new Ref.  Debit Credit Balance 1,200,000

par $10 July 31 120,000 1,320,000

Common Stock Dividends Distributable
Date July Explanation 1 31 Ref. Debit 120,000 Credit 120,000 Balance 120,000 0

Paid-in Capital in Excess of Par Value
Date Jan. July 1 1 Explanation Balance Ref. Debit Credit 36,000



Balance 200,000236,000

Retained Earnings
Date Jan. Feb. July Dec. 1 1 1 1 31 Explanation Balance Cash dividend Stock dividend Cash dividend Net income Ref. Debit 60,000 156,000 66,000 350,000 Credit



Balance 600,000 540,000 384,000 318,000 668,000

(c)

CAROLINAS CORPORATION Balance Sheet (Partial) December 31, 2008 Stockholders’ equity Paid-in capital Capital stock Common stock, $10 par value,...