C. The drawings account balances are deducted to arrive at the net income to allocate to the partners.
D. The drawings account is closed to retained earnings at the end of the period.
The capital account in a partnership keeps track of each partner's capital balance and is affected by partner investments and withdrawals as well as net income.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Difficulty: Medium Learning Objective: Chapter Supplement A Libby - Chapter 11 #100 Topic Area: Accounting For Sole Proprietorships And Partnerships
101. Constance Corporation reported a $750,000 balance in its common stock account at the end of 2010.
The company held 50,000 shares of treasury stock and had 700,000 shares outstanding. Calculate the par value per share of the company's common stock.
Answers will vary
Feedback: Common stock ($750,000) = Number of common shares issued (50,000 + 700,000) × Par value per share ($1)
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #101 Topic Area: Common Stock Transactions
102. The charter of Delta Corporation specified a maximum of 25,000 shares of common stock. At the current date, 5,000 shares remain unissued, and 2,000 of the issued shares have been repurchased and are still held by Delta. Calculate the number of shares issued, authorized, outstanding, and held in the treasury.
Answers will vary
Feedback: Authorized shares (25,000) - Unissued shares (5,000) = Issued shares (20,000).
Outstanding shares (18,000) = Issued shares (20,000) - Treasury shares (2,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #102 Topic Area: Common Stock Transactions
103. DRP, Inc. sold and issued 50,000 shares of its own $50 par value preferred stock for $110 per share, and 200,000 shares of its no par common stock for $40 per share. Prepare the required journal entry.
Answers will vary
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AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #103 Topic Area: Common Stock Transactions
104. Three dates are described below.
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Feedback:
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 11-04 Discuss dividends and analyze transactions.
Libby - Chapter 11 #104 Topic Area: Common Stock Transactions
105. At the end of 2010, Washington Corporation reported a $40,000 balance in its common stock account (par value $1 per share). The treasury stock account balance was $720 (cost $6 per share). During 2010, the company declared and paid a cash dividend at $1.50 per share. Calculate the total amount of the 2010 cash dividend.
Answers will vary
Feedback: The number of issued shares (40,000) = Common stock account balance ($40,000) ÷ $1 per share par value.
The number of treasury shares (120) = Treasury stock account balance ($720) ÷ Cost per share ($6).
2010 cash dividend ($59,820) = Number of outstanding shares (40,000 - 120) × Dividend per share ($1.50).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-04 Discuss dividends and analyze transactions.
Libby - Chapter 11 #105 Topic Area: Common Stock Transactions
106. Survivor Company was formed on January 1, 2010 by selling and issuing 20,000 shares of common stock at $15 per share. On December 1, 2010, the company declared a cash dividend of $10,000 which will be paid in cash on January 15, 2011.
Requirements:
A. Prepare the journal entry to record the sale and issuance of the common stock on January 1, 2010 under each of the following independent assumptions:
1. The common stock has a par value of $10 per share.
2. The common stock was no par with a stated value of $5 per share.
3. The common stock was no par and no stated value.
B. Prepare the journal entry to record the dividend declaration on December 1, 2010.
C. Prepare the journal entry to record payment of the dividend on January 15, 2011.
Answers will vary
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AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #106 Topic Area: Common Stock Transactions
107. Contrast the economic effects of a cash dividend (declared and paid) with a stock dividend (declared and issued) on the distributing corporation by completing the following chart by placing "X" where appropriate.
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AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 11-04 Discuss dividends and analyze transactions.
Libby - Chapter 11 #107 Topic Area: Common Stock Transactions
108. The following information is available for Bradford Bikes for the years 2011 and 2010:
Requirements:
A. Calculate the dividend yield ratio for both 2011 and 2010.
B. Interpret the yield ratio in terms of whether it is high or low, whether it indicates a steady dividend policy, and whether Bradford Bikes appears to be growing or stagnant.
Answers will vary
Feedback: A. Dividend yield in 2011 is 1.6% ($.85/$53.00) and 2010 is 1.5% ($.63/$41.50)
B. The dividend yield paid as an immediate return to Bradford Bikes' stockholders is low in comparison to the market price investors are willing to pay for their shares of stock. However, they are paying out about 30% of their current earnings (EPS) as dividends to their investors.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 11-05 Analyze the dividend yield ratio.
Libby - Chapter 11 #108 Topic Area: Key Ratio Analysis
109. The following information is available for Italiano Ices for the years 2011 and 2010:
Requirements:
A. Calculate the dividend yield for both 2011 and 2010.
B. Does the dividend yield appear to be low, moderate or high and what caused the change in the yield from 2010 to 2011?
Answers will vary
Feedback: A. The 2011 dividend yield was 2.6% ($1 ÷ $38.30) and the 2010 yield was 2.0% ($.88 ÷
$44.00).
B. The yield appears to be on the low side, which means the company is reinvesting in growth of operations and earnings to improve the price performance. The ratio increased primarily because the market price of the stock dropped almost $5 per share in 2011 even though the dividends went up $.12 per share.
AACSB: Apply AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Analytic Difficulty: Medium Learning Objective: 11-05 Analyze the dividend yield ratio.
Libby - Chapter 11 #109 Topic Area: Key Ratio Analysis
110. Tractor Corporation was just formed. The following accounts of Tractor Corporation, with code letters, are needed to record the transactions given below. You are to indicate the appropriate journal entry for each transaction by entering the code letters and the correct amounts. The transactions including the example are independent unless otherwise stated.
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions.
Libby - Chapter 11 #110 Topic Area: Common Stock Transactions, Financial Analysis
111. HighRise Company reported the following amounts of contributed capital in the stockholders' equity accounts as of January 1, 2010:
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions.
Libby - Chapter 11 #111 Topic Area: Common Stock Transactions, Financial Analysis
112. On January 1, 2010, the stockholders' equity section of Gibbons Corporation's balance sheet reported the following:
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions.
Libby - Chapter 11 #112 Topic Area: Common Stock Transactions, Financial Analysis
113. On January 1, 2010, the accounts of Mac Corporation showed the following:
Answers will vary
Feedback: (1) ($60,000/$2) = 30,000 shares x 2 (100% stock dividend) = 60,000 shares (2) 60,000 shares x $1 = $60,000
(3) $60,000
(4) $60,000 + $60,000 = $120,000
(5) $140,000 - (stock dividend, 30,000 shares x $1) - (cash dividend, $15,000) + net income, $25,000 =
$120,000
(6) Treasury stock, shares, 1,000 (7) $8,000 (cost)
(8) $120,000 + $120,000 - $8,000 = $232,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions.
Libby - Chapter 11 #113 Topic Area: Financial Analysis
114. On December 31, 2010, Brave Corporation reported the following on its balance sheet:
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #114 Topic Area: Common Stock Transactions
115. During 2010, Sanders Corporation made the following journal entry to record the declaration and payment of a cash dividend:
The total par values of common and preferred stock outstanding were $70,000 and $40,000, respectively. No dividends were declared or paid during 2009. There are 1,000 shares of common treasury stock.
Requirements:
A. If the preferred stock is noncumulative, calculate the current dividend rate on the preferred stock.
B. If the preferred stock is cumulative, calculate the current dividend rate on the preferred stock.
Answers will vary AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-07 Describe the characteristics of preferred stock and analyze transactions affecting preferred stock.
Libby - Chapter 11 #115 Topic Area: Financial Analysis
116. Wedge Corporation has the following capital stock outstanding:
$1 par value common stock, 250,000 shares.
8% preferred stock, par $100, 5,000 shares, cumulative, with 2 years in arrears.
Cash dividends of $150,000 were declared and paid near the end of the current year.
Requirements:
A. Calculate the dividends received by the preferred stockholders.
B. Calculate the dividends received by the common stockholders.
Answers will vary
Feedback: A. Preferred: (5,000 shares x $100 x 8%) x 3 years = $120,000 B. Common: $150,000 - $120,000 = $30,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-07 Describe the characteristics of preferred stock and analyze transactions affecting preferred stock.
Libby - Chapter 11 #116 Topic Area: Financial Analysis
117. Marlin, Inc., declared a cash dividend of $40,000 in 2009 when the following stocks were outstanding:
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 11-07 Describe the characteristics of preferred stock and analyze transactions affecting preferred stock.
Libby - Chapter 11 #117 Topic Area: Financial Analysis
118. Identify the effects on cash flow from financing activities of the following activities as increasing (+), decreasing (-) or having no effect on financing cash flows:
Answers will vary
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AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 11-08 Discuss the impact of captial stock transactions on cash flows.
Libby - Chapter 11 #118 Topic Area: Focus On Cash Flows
119. Determine the effect of the following transactions on the financial statement components identified.
Code your answers as follows:
A. If the transaction results in an increase in the financial statement component.
B. If the transaction results in a decrease in the financial statement component.
C. If the transaction does not affect the financial statement component.
Answer: Transaction 1: Common stock was sold at a price in excess of par value.
Net income ______
Total assets ______
Stockholders' equity ______
Transaction 2: Treasury stock was purchased using cash.
Net income ______
Total assets ______
Stockholders' equity ______
Transaction 3: Treasury stock was sold for cash at a price less than the treasury stock's cost.
Net income ______
Total assets ______
Stockholders' equity ______
Transaction 4: Treasury stock was sold for cash at a price greater than the treasury stock's cost.
Net income ______
Total assets ______
Stockholders' equity ______
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
Libby - Chapter 11 #119 Topic Area: Common Stock Transactions
120. Determine the effect of the following transactions on the financial statement components identified.
Code your answers as follows:
A. If the transaction results in an increase in the financial statement component.
B. If the transaction results in a decrease in the financial statement component.
C. If the transaction does not affect the financial statement component.
Answer: Transaction 1: A cash dividend was declared.
Net income ______
Total assets ______
Total liabilities _______
Stockholders' equity ______
Transaction 2: A previously declared cash dividend was paid.
Net income ______
Total assets ______
Total liabilities _______
Stockholders' equity ______
Transaction 3: A 2-for-1 stock split was declared and distributed.
Net income ______
Total assets ______
Total liabilities ______
Stockholders' equity ______
Transaction 4: A common stock dividend was declared and distributed.
Net income ______
Total assets ______
Total liabilities ______
Stockholders' equity ______
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions.
Libby - Chapter 11 #120 Topic Area: Financial Analysis
121. Prepare journal entries for each of the following AJ Partnership transactions:
1. A and J each contribute cash into the partnership in exchange for capital.
2. A makes a cash withdrawal from the partnership.
3. Partnership net income is allocated to the partners' capital accounts.
4. A's drawing account is closed.
Answers will vary Feedback: 1. Cash A, Capital
J, Capital 2. J, Drawings Cash
3. Net income (revenue and expense accounts) A, Capital
J, Capital 4. A, Capital A, Drawings
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: Chapter Supplement A Libby - Chapter 11 #121 Topic Area: Accounting For Sole Proprietorships And Partnerships
ch11 Summary
Category # of Questions
AACSB: Analytic 49
AACSB: Apply 1
AACSB: Reflective Thinking 70
AACSB: Understand 1
AICPA BB: Critical Thinking 121
AICPA FN: Measurement 22
AICPA FN: Reporting 43
AICPA FN: Reporting, Measurement 49
AICPA FN: Risk Analysis 7
Blooms: Analytic 1
Learning Objective: 11-01 Explain the role of stock in the capital structure of a corporation. Explain the role of stock in the capital structure of a corporation.
7
Learning Objective: 11-02 Analyze the earnings per share ratio. 11
Learning Objective: 11-03 Describe the characteristics of common stock and analyze transactions affecting common stock.
40
Learning Objective: 11-04 Discuss dividends and analyze transactions. 12
Learning Objective: 11-05 Analyze the dividend yield ratio. 8
Learning Objective: 11-06 Discuss the purpose of stock dividends and stock splits; and report transactions. 21 Learning Objective: 11-07 Describe the characteristics of preferred stock and analyze transactions affecting preferred
stock.
17
Learning Objective: 11-08 Discuss the impact of captial stock transactions on cash flows. 6
Learning Objective: Chapter Supplement A 5
Libby - Chapter 11 121
Topic Area: Accounting For Sole Proprietorships And Partnerships 5
Topic Area: Common Stock Transactions 53
Topic Area: Common Stock Transactions, Financial Analysis 3
Topic Area: Financial Analysis 29
Topic Area: Focus On Cash Flows 6
Topic Area: Key Ratio Analysis 10
Topic Area: Preferred Stock 2
Topic Area: Understanding The Business 13