Chapter 8 – Exercises
Exercise 16
1st Year2nd Year3rd Year4th Year
a.Total dividend declared...... $ 4,000 $ 10,400$40,000 $ 90,000
b.Total preferred dividends..... $4,000$10,400$12,000 $12,000
Preferred shares outstanding.. ÷ 80,000 ÷ 80,000÷80,000 ÷ 80,000
Preferred dividend per share.. $ 0.05$0.13$0.15$0.15
Dividend for common share
(a. – b.)...... $ —$ —$28,000 $ 78,000
Common shares outstanding.. ÷ 200,000÷200,000
Common dividend per share.. $0.14$0.39
Exercise 17
a.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Paid-In Capital in / Statement
Cash / = / Common Stock / + / Excess of Par—Common Stock
Jan. 29. / 1,725,000 / 750,000 / 975,000
Balance Sheet
Assets / = / Liabilities / + / Stockholders’ Equity / Income
Paid-In Capital in / Statement
Cash / = / Preferred Stock / + / Excess of Par—Preferred Stock
May 31. / 600,000 / 400,000 / 200,000
b.$2,325,000 ($1,725,000 + $600,000)
Exercise 21
a.$990,000 ($33 × 30,000 shares)
b.Stockholders’ Equity section as a reduction (decrease)
c.Banff Water Inc. 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 agreements.
d.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Treasury / Paid-In Capital / Statement
Cash / = / Stock / + / from Treasury Stock
Jan. 25. / 800,0001 / 660,0002 / 140,0003
1$800,000 = 20,000 shares × $40
2$660,000 = 20,000 shares × $33
3$140,000 = $800,000 – $660,000
Exercise 23
Stockholders’
AssetsLiabilitiesEquity
(1)Declaring a cash dividend0+–
(2)Paying the cash dividend
declared in (1)––0
(3)Authorizing and issuing stock
certificates in a stock split000
(4)Declaring a stock dividend000
(5)Issuing stock certificates for
the stock dividend declared
in (4)000
Exercise 24
a.72,000 shares (18,000 × 4)
b.$70 per share ($280 ÷ 4)
Chapter 8 – Problems
Problem 2
1.$46,875 ($625,000 × 7.5%)
2.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Employee / FICA / Bond / Group / Statement
Income Tax
Payable / + / Tax
Payable / + / Deduction
Payable / + / Ins.
Payable / + / Salaries
Payable / + / Retained
Earnings
July 17. / 98,000 / 46,875 / 15,000 / 12,500 / 452,625* / –625,000 / July 17.
Income Statement
July 17. / Sales salaries exp.
Warehouse salaries
exp. / –315,000
–185,000
Office salaries exp. / –125,000
*$452,625 = $625,000 – $98,000 – $46,875 – $15,000 – $12,500
Problem 2, Concluded
3.(a) $46,875 ($625,000 × 7.5%)
(b) $26,250 ($625,000 × 4.2%)
(c)$5,000 ($625,000 × 0.8%)
4.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
FICA Tax / SUTA / FUTA / Retained / Statement
Payable / + / Payable / + / Payable / + / Earnings
July 17. / 46,875 / 26,250 / 5,000 / –78,125 / July 17.
Income Statement
July 17.Payroll tax exp. / –78,125
Problem 3
1.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Statement
Cash / = / Bonds Payable
July 1. / 25,000,000 / 25,000,000
2.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Retained / Statement
Cash / = / Earnings
Dec. 31. / –1,000,000* / –1,000,000 / Dec. 31
Income Statement
Dec. 31. / Interest
exp. –1,000,000
*$25,000,000 × 8% × 1/2 = $1,000,000
3.
Balance SheetAssets / = / Liabilities / + / Stockholders’ Equity / Income
Statement
Cash / = / Bonds Payable
June 30. / –25,000,000 / –25,000,000
4.The bonds would have sold at a premium since the market rate of interest is less than the coupon rate of interest. Thus, investors will be willing to pay more than the face amount of the bonds when the interest payments they will receive from the bonds are more than the amount of interest that they could receive from investing in other bonds.