Chapter 11 - Reporting and Interpreting Owners’ Equity

E11–7.

Req. 1

a. Cash (50,000 shares x $50) (+A) .......................................... 2,500,000 Common stock (50,000 shares x $2) (+SE) ...................... 100,000 Capital in excess of par, common stock (+SE) .................. 2,400,000 Sold common stock at a premium. b.

Treasury stock (2,000 shares x $52) (+XSE, -SE) ................ Cash (-A) ........................................................................... Bought treasury stock.

104,000

104,000

Req. 2

Stockholders’ Equity

Contributed capital: Common stock, par $2, authorized 80,000 shares, issued 50,000 shares .......................................................................... $ 100,000 Contributed capital in excess of par ........................................................ 2,400,000 Total contributed capital .......................................................................... 2,500,000 Treasury stock............................................................................................ (104,000 ) Stockholders’ equity ................................................................................... $2,396,000 E11–8.

Shareholders’ equity (deficit) in thousands:

Common stock, par value $.01 per share; 100,000,000 shares authorized, 33,981,509 shares issued and outstanding at December 31, 2010, 34,150,389 shares issued and outstanding at December 31, 2011 Additional paid-in capital Accumulated deficit

Total shareholders’ equity

Financial Accounting, 8/e 11-13 ? 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2010 2011 340 342 198,304 200,524 (118,282 ) (98,733 ) 80,362 102,133

Chapter 11 - Reporting and Interpreting Owners’ Equity

E11–9.

Stockholders’ Equity

Contributed capital: Preferred stock, 8%, par $50, authorized 59,000 shares, issued and outstanding, 20,000 shares ............................................... $1,000,000 Common stock, par $10, authorized 98,000 shares, issued, 78,000 shares ......................................................................... 780,000 Capital in excess of par, preferred stock ................................................. 600,000 Capital in excess of par, common stock .................................................. 780,000 Treasury stock ..................................................................................... (80,000) Retained earnings* ......................................................................................... 160,000 Total stockholders’ equity........................................................................ $3,240,000 *($210,000 – $50,000 = $160,000.) E11–10.

Req. 1

a. Cash (20,000 shares x $20) (+A) .......................................... 400,000 Common stock, no-par (+SE) ............................................ . b. Cash (6,000 shares x $40) (+A) ............................................ 240,000 Common stock, no-par (+SE) ........................................... c.

Cash (7,000 shares x $30) (+A) ............................................ 210,000 Preferred stock (7,000 shares x $10) (+SE) ...................... Capital in excess of par, preferred (+SE) ..........................

400,000 240,000 70,000 140,000

Req. 2

Yes, it is ethical as long as there is a full disclosure of relevant information. In any arm’s

length transaction, an informed buyer will pay the market value of the stock.

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Chapter 11 - Reporting and Interpreting Owners’ Equity

E11–11. Req. 1

Number of preferred shares issued: $100,000 ? $10 = 10,000 Req. 2

Number of preferred shares outstanding: 10,000 shares issued minus 500 shares held as treasury stock = 9,500. Req. 3

Average sales price per share of preferred stock when issued: ($100,000 + $15,000) ÷ 10,000 shares = $11.50. Req. 4

Decreased corporate resources by $9,500 - $1,500 = $8,000. Req. 5

Treasury stock transactions decreased stockholders’ equity by $8,000 (same as the decrease in corporate resources in 4 above). Req. 6

Treasury stock cost per share: $9,500 ÷ 500 shares = $19.00. Req. 7

Total stockholders’ equity: $741,000. Req. 8

Issue price of common stock $600,000 ÷ 8,000 shares = $75.00.

Financial Accounting, 8/e 11-15 ? 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 11 - Reporting and Interpreting Owners’ Equity

E11–12. Req. 1

The number of shares that have been issuedis computed by dividing the common stock account ($4,008 million) by the par value of the shares ($1 per share) or approximately 4,008,000,000 shares. Req. 2

Retained earnings end of 2011 ............ $70,682,000,000 Net income for 2012 ............................ 10,756,000,000 Dividends for 2012 ............................... (5,811,600,000 ) Retained earnings end of 2012 ............ $75,626,400,000

The amount of retained earnings is an estimate because we do not know the exact

number of shares outstanding (because we do not know the number of shares in treasury stock). This number is needed to determine the amount of dividends paid during 2012. We based the dividends on the estimate calculated in the previous requirement.

E11–13. Req. 1 Assets Stockholders’ Equity

- $133,750,000 - $133,750,000 The treasury stock account is a contra equity account, meaning that it subtracts from the total stockholders’ equity. Cash also decreases on the balance sheet by the same amount.

Req. 2

Many companies repurchase common stock in order to develop an employee bonus plan that provides workers with shares of the company’s stock as part of their compensation. Because of SEC regulations concerning newly issued shares,

companies find it cheaper to give their employees shares of stock that were purchased from stockholders than to issue new shares. In this case, the company mentions the goal of enhancing shareholders’ value. If the company maintains its current level of income, earnings per share will increase with fewer shares outstanding. The

management expects that the increase in EPS will be reflected in an increase in stock price. Req. 3

Shares that are held in treasury stock do not participate in dividend payments. As a result, the purchase of treasury stock will reduce the amount of dividends that the company must pay in future years.

11-16 Solutions Manual ? 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.