# How to Calculate Common Stockholders Equity - PDF

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```					                                                                                                                           Problems: Set C                  1
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Problems: Set C

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P11-1C Fullerton Corporation was organized on January 1, 2010. It is authorized to                                       Journalize stock
issue 50,000 shares of 8%, \$75 par value preferred stock and 700,000 shares of no-par                                    transactions, post, and
common stock with a stated value of \$2 per share. The following stock transactions were                                  prepare paid-in capital
completed during the first year.                                                                                         section.
(SO 2, 4, 7)
Jan.    7   Issued   90,000 shares of common stock for cash at \$5 per share.
Feb.   12   Issued   7,000 shares of preferred stock for cash at \$77 per share.
June   30   Issued   65,000 shares of common stock for cash at \$6 per share.
Aug.   24   Issued   25,000 shares of common stock for cash at \$6.50 per share.
Dec.    1   Issued   2,000 shares of preferred stock for cash at \$80 per share.

Instructions
(a) Journalize the transactions.
(b) Post to the stockholders’ equity accounts. (Use T accounts.)
(c) Prepare the paid-in capital portion of the stockholders’ equity section at December                                  (c) Tot. paid-in capital
31, 2010.                                                                                                                                       \$1,701,500

P11-2C The stockholders’ equity accounts of Burnham Corporation on January 1, 2010,                                      Journalize transactions, post,
were as follows.                                                                                                         and prepare a stockholders’
equity section; calculate
Preferred Stock (6%, \$50 par noncumulative, 8,000 shares authorized)            \$ 175,000                                ratios.
Common Stock (\$1 stated value, 400,000 shares authorized)                          250,000                               (SO 2, 3, 5, 7, 8)
Paid-in Capital in Excess of Par Value—Preferred Stock                               7,000
Paid-in Capital in Excess of Stated Value—Common Stock                           4,000,000
Retained Earnings                                                                  950,000
Treasury Stock—Common (12,000 shares)                                               66,000
During 2010 the corporation had the following transactions and events pertaining to its
stockholders’ equity.

Feb. 1      Issued 7,000 shares of common stock for \$126,000.
July 12     Purchased 2,000 additional shares of common treasury stock at \$17 per
share.
Oct. 1      Declared a 6% cash dividend on preferred stock, payable November 1.
Nov. 1      Paid the dividend declared on October 1.
Dec. 1      Declared a \$2.00 per share cash dividend to common stockholders of
record on December 15, payable December 31, 2010.
31   Determined that net income for the year was \$950,000. Paid the
dividend declared on December 1.

Instructions
(a) Journalize the transactions. (Include entries to close net income to Retained Earnings.)
(b) Enter the beginning balances in the accounts and post the journal entries to the stock-
holders’ equity accounts. (Use T accounts.)
(c) Prepare the stockholders’ equity section of the balance sheet at December 31, 2010.                                  (c) Tot. paid-in capital
(d) Calculate the payout ratio, earnings per share, and return on common stockholders’                                                              \$4,558,000
equity ratio. (Note: Use the common shares outstanding on January 1 and December
31 to determine the average shares outstanding.)

P11-3C On December 31, 2009, Peabody Company had 820,000 shares of \$10 par                                               Prepare a stockholders’
common stock issued and outstanding. The stockholders’ equity accounts at December                                       equity section.
31, 2009, had the balances listed here.                                                                                  (SO 7)
Common Stock                   \$8,200,000
Additional Paid-in Capital      2,460,000
Retained Earnings               1,600,000

Transactions during 2010 and other information related to stockholders’ equity accounts
were as follows.
1. On January 18, 2010, issued at \$107 per share 80,000 shares of \$100 par value, 7%
cumulative preferred stock.
2     chapter 11 Reporting and Analyzing Stockholders’ Equity

2. On March 23, 2010, reacquired 20,000 shares of its common stock for \$15 per share.
3. On June 8, 2010, declared a cash dividend of \$2.00 per share on the common stock
outstanding, payable on July 10, 2010, to stockholders of record on July 1, 2010.
4. On December 15, 2010, declared the yearly cash dividend on preferred stock, payable
January 12, 2011, to stockholders of record on December 15, 2010.
5. Net income for the year was \$2,900,000.
Tot. stockholders’ equity
Instructions
\$21,260,000
Prepare the stockholders’ equity section of Peabody’s balance sheet at December 31, 2010.
Reproduce retained earnings
account, and prepare a                    P11-4C The ledger of Watterson Corporation at December 31, 2010, after the books have
stockholders’ equity section.             been closed, contains the following stockholders’ equity accounts.
(SO 5, 6, 7)
Preferred Stock (8,000 shares issued)                            \$ 800,000
Common Stock (430,000 shares issued)                                860,000
Paid-in Capital in Excess of Par Value—Preferred Stock              200,000
Paid-in Capital in Excess of Stated Value—Common Stock            1,750,000
Retained Earnings                                                 2,872,000
A review of the accounting records reveals this information:
1. Preferred stock is 10%, \$100 par value, noncumulative. Since January 1, 2009, 8,000
shares have been outstanding; 20,000 shares are authorized.
2. Common stock is no-par with a stated value of \$2 per share; 500,000 shares are
authorized.
3. The January 1, 2010, balance in Retained Earnings was \$2,450,000.
4. On October 1, 80,000 shares of common stock were sold for cash at \$8 per share.
5. A cash dividend of \$553,000 was declared and properly allocated to preferred and com-
mon stock on November 1. No dividends were paid to preferred stockholders in 2009.
6. Net income for the year was \$975,000.
7. On December 31, 2010, the directors authorized disclosure of a \$160,000 restriction
of retained earnings for plant expansion. (Use Note A.)

(b) Tot. paid-in capital                  Instructions
\$3,610,000   (a) Reproduce the retained earnings account (T account) for the year.
(b) Prepare the stockholders’ equity section of the balance sheet at December 31.

Prepare entries for stock                 P11-5C Hartwell Corporation has been authorized to issue 25,000 shares of \$100 par
transactions, and prepare a               value, 8%, noncumulative preferred stock and 1,000,000 shares of no-par common stock.
stockholders’ equity section.             The corporation assigned a \$4 stated value to the common stock. At December 31, 2010,
(SO 2, 3, 4, 7)                           the ledger contained the following balances pertaining to stockholders’ equity.
Preferred Stock                                                  \$ 400,000
Paid-in Capital in Excess of Par Value—Preferred Stock               52,000
Common Stock                                                      2,400,000
Paid-in Capital in Excess of Stated Value—Common Stock            6,600,000
Treasury Stock—Common (40,000 shares)                               680,000
Retained Earnings                                                 3,630,000
The preferred stock was issued for \$452,000 cash. All common stock issued was for cash.
In November 40,000 shares of common stock were purchased for the treasury at a per
share cost of \$17. No dividends were declared in 2010.
Instructions
(a) Prepare the journal entries for the following.
(1) Issuance of preferred stock for cash.
(2) Issuance of common stock for cash.
(b) Tot. stockholders’ equity                 (3) Purchase of common treasury stock for cash.
\$12,402,000   (b) Prepare the stockholders’ equity section of the balance sheet at December 31, 2010.
Prepare a stockholders’
P11-6C    On January 1, 2010, Ferris Inc. had these stockholders’ equity balances.
equity section.
(SO 7)                                         Common Stock, \$5 par (2,000,000 shares authorized, 600,000
shares issued and outstanding)                                    \$3,000,000
Paid-in Capital in Excess of Par Value                               1,800,000
Retained Earnings                                                      810,000
Problems: Set C                   3

During 2010, the following transactions and events occurred.
1.    Issued 75,000 shares of \$5 par value common stock for \$9 per share.
2.    Issued 60,000 shares of common stock for cash at \$9.50 per share.
3.    Purchased 25,000 shares of common stock for the treasury at \$10 per share.
4.    Declared and paid a cash dividend of \$284,000.
5.    Earned net income of \$860,000.
Tot. stockholders’ equity
Instructions                                                                                                               \$7,181,000
Prepare the stockholders’ equity section of the balance sheet at December 31, 2010.
Evaluate a company’s
P11-7C Keeley Company manufactures disc golf equipment. During 2010 Keeley                     profitability and solvency.
issued bonds at 8% interest and used the cash proceeds to purchase treasury stock.             (SO 8)
The following financial information is available for Keeley Company for the years 2010
and 2009.
2010           2009
Sales                                  \$ 6,000,000       \$ 6,000,000
Net income                               1,460,000         1,500,000
Interest expense                           280,000           120,000
Tax expense                                630,000           660,000
Dividends paid                             770,000           750,000
Total assets (year-end)                  9,800,000         8,600,000
Average total assets                     8,800,000         9,100,000
Total liabilities (year-end)             4,000,000         2,000,000
Average total stockholders’ equity       5,700,000         7,400,000

Instructions
(a) Use the information above to calculate the following ratios for both years: (i) return
on assets ratio, (ii) return on common stockholders’ equity ratio, (iii) payout ratio,
(iv) debt to total assets ratio, (v) times interest earned ratio.
(b) Referring to your findings in part (a), discuss the changes in the company’s profitabil-
ity from 2009 to 2010.
(c) Referring to your findings in part (a), discuss the changes in the company’s solvency
from 2009 to 2010.
(d) Based on your findings in (b), was the decision to issue debt to purchase common
stock a wise one?
Prepare dividend entries,
*P11-8C On January 1, 2010, Corbett Corporation had these stockholders’ equity                 prepare a stockholders’ equity
accounts.                                                                                     section, and calculate ratios.

Common Stock (\$2 par value, 80,000 shares issued and outstanding)          \$160,000       (SO 5, 7, 8, 9)
Paid-in Capital in Excess of Par Value                                      400,000
Retained Earnings                                                           580,000
During the year, the following transactions occurred.
Jan. 10   Declared a \$0.60 cash dividend per share to stockholders of record on
January 31, payable February 28.
Feb. 28   Paid the dividend declared in January.
May 1     Declared a 5% stock dividend to stockholders of record on May 10,
distributable June 1. On May 1, the market price of the stock was
\$9 per share.
June 1    Issued the shares for the stock dividend.
Dec. 1    Declared a \$0.75 per share cash dividend to stockholders of record on
December 15, payable January 10, 2011.
31   Determined that net income for the year was \$320,000.

Instructions
(a) Journalize the transactions. (Include entries to close net income to Retained
Earnings.)
(b) Enter the beginning balances and post the entries to the stockholders’ equity T
accounts. (Note: Open additional stockholders’ equity accounts as needed.)                 (c) Tot. stockholders’ equity
(c) Prepare the stockholders’ equity section of the balance sheet at December 31.                                           \$1,349,000
(d) Calculate the payout ratio and return on common stockholders’ equity ratio.

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