Chapter 15 Self Study Solutions

CHAPTER15
StockholdersEquity
SOLUTIONSTO BRIEFEXERCISES
BRIEFEXERCISE15-1
Cash............................................................................... 4,500
CommonStock(300 X $10)................................................
Paid-in Capital in Excessof Par..........................................
3,000
1,500
BRIEFEXERCISE15-2
(a)
Cash........................................................................ 8,200
CommonStockNo-Par Value....................................
8,200
(b) Cash........................................................................ 8,200

CommonStock(600 X $2)..........................................
Paid-in Capital in Excessof StatedValue.....................
1,200
7,000
BRIEFEXERCISE15-3
WILCOCORPORATION
StockholdersEquity
December31, 2010
Commonstock,$5 par value......................................................
Paid-in capital in excessof par...................................................
Total paid-in capital..................................................................
Retainedearnings....................................................................
Less:Treasurystock................................................................
Total stockholdersequity..................................................
$ 510,000
1,320,000
1,830,000
2,340,000
4,170,000
(90,000)
$4,080,000
BRIEFEXERCISE15-4
Cash............................................................................. 13,500
PreferredStock(100 X $50)................................................
Paid-in Capital in Excessof ParPreferred..........................
Copyright 2010 John Wiley & Sons, Inc.Kieso, Intermediate Accounting, 13/e, Solutions Manual(For Instructor Use Only)
5,000
3,100
15-1
CommonStock(300 X $10)................................................
Paid-in Capital in Excessof ParCommon..........................
FMVof common(300X $20).......................................................
FMVof preferred(100 X $90)......................................................
Total FMV........................................................................
Allocatedto common
$6,000
$15,000
X $13,500= $ 5,400
$9,000
$15,000
X $13,500=
Allocatedto preferred
3,000
2,400
$ 6,000
9,000
$15,000
8,100
$13,500
BRIEFEXERCISE15-5
Land............................................................................. 31,000
CommonStock(3,000X $5)...............................................
15,000
16,000
BRIEFEXERCISE15-6
Cash($60,000 $1,500).............................................................
CommonStock(2,000X $10)..............................................
58,500
20,000
38,500
BRIEFEXERCISE15-7
7/1/10
9/1/10
11/1/10
15-2
TreasuryStock(100X $87).......................................
Cash..............................................................
8,700
Cash(60 X $90).......................................................
TreasuryStock(60 X $87).................................
Paid-in Capital fromTreasuryStock...................
5,400
Cash(40 X $83).......................................................
Paid-in Capital fromTreasuryStock...........................
TreasuryStock(40 X $87).................................
3,320
160
8,700
5,220
180
3,480
15-3
BRIEFEXERCISE15-8
8/1/10
11/1/10
TreasuryStock(200X $80)...................................
Cash.........................................................
16,000
Cash(200 X $70).................................................
RetainedEarnings..............................................
TreasuryStock...........................................
14,000
2,000
16,000
16,000
BRIEFEXERCISE15-9
Cash......................................................................... 61,500
PreferredStock(500 X $100)..........................................
Paid-in Capital in Excessof ParPreferred.....................
50,000
11,500
BRIEFEXERCISE15-10
Aug. 1
RetainedEarnings(2,000,000X $1.00)..................
DividendsPayable....................................
Aug. 15
No entry.
Sep. 9
DividendsPayable.............................................
Cash.......................................................
2,000,000
2,000,000
2,000,000
2,000,000
BRIEFEXERCISE15-11
Sep. 21
Available-for-Sale Securities...............................
Gainon Appreciationof
Securities($1,200,000 $875,000)..............
325,000
RetainedEarnings.............................................
PropertyDividendsPayable.......................
1,200,000
Oct. 8
No entry.
Oct. 23
PropertyDividendsPayable................................
Available-for-Sale Securities......................
15-4
325,000
1,200,000
1,200,000
1,200,000
BRIEFEXERCISE15-12
Apr. 20
June1
RetainedEarnings($500,000 $125,000)................
Paid-in Capital in Excessof Par.............................
DividendsPayable......................................
375,000
125,000
DividendsPayable...............................................
Cash.........................................................
500,000
500,000
500,000
BRIEFEXERCISE15-13
DeclarationDate.
RetainedEarnings................................................................
CommonStockDividendDistributable...........................
Paid-in Capital in Excessof Par.....................................
(20,000X $65 = $1,300,000;
(20,000X $10 = $200,000)
DistributionDate.
CommonStockDividendDistributable....................................
CommonStock...........................................................
1,300,000
200,000
1,100,000
200,000
200,000
BRIEFEXERCISE15-14
DeclarationDate.
RetainedEarnings................................................................
CommonStockDividendDistributable
(400,000X $10).........................................................
DistributionDate.
CommonStockDividendDistributable....................................
CommonStock...........................................................
4,000,000
4,000,000
4,000,000
4,000,000
15-5
*BRIEFEXERCISE15-15
(a)
Preferred stockholders would receive $60,000 (6% X $1,000,000) and the remainder of
$240,000($300,000 $60,000)wouldbe distributedto commonstockholders.
(b)
Preferredstockholderswould receive $180,000(6% X $1,000,000X 3) and the remainder

of $120,000wouldbe distributedto the commonstockholders.
15-6
SOLUTIONSTO EXERCISES
EXERCISE15-1 (1520minutes)
(a)
Jan.
Mar.
July
Sept.
(b) Jan.
Mar.
10
10
Cash(80,000X $6).......................................
CommonStock(80,000X $3)..................
Paid-in Capital in Excessof Par..............
480,000
OrganizationExpense..................................
CommonStock(5,000X $3)....................
Paid-in Capital in Excessof Par..............
35,000
Cash(30,000X $8).......................................
CommonStock(30,000X $3)..................
Paid-in Capital in Excessof Par
(30,000X $5)......................................
240,000
Cash(60,000X $10).....................................
CommonStock(60,000X $3)..................
(60,000X $7)......................................
600,000
Cash(80,000X $6).......................................
CommonStock(80,000X $2)..................
Paid-in Capital in Excessof
StatedValue(80,000X $4)...................
480,000
OrganizationExpense..................................
CommonStock(5,000X $2)....................
StatedValue......................................
35,000
240,000
240,000
15,000
20,000
90,000
150,000
180,000
420,000
160,000
320,000
10,000
25,000
($35,000 $10,000or 5,000X $5)
July
Sept.
Cash(30,000X $8).......................................
CommonStock(30,000X $2)..................
StatedValue(30,000X $6)...................
240,000
Cash(60,000X $10).....................................
CommonStock(60,000X $2)..................
600,000
60,000
180,000
120,000
15-7
StatedValue(60,000X $8)...................
480,000
Jan. 10
Mar.
April
May
Aug.
Cash(80,000X $5)...............................................
CommonStock(80,000X $2)..........................
Paid-in Capital in Excessof Stated
ValueCommonStock
(80,000X $3)..............................................
400,000
Cash(5,000X $108).............................................
PreferredStock(5,000X $50)..........................
ValuePreferredStock
(5,000X $58)..............................................
540,000
Land..................................................................
CommonStock(24,000X $2)..........................
ValueCommonStock
($80,000 $48,000).....................................
80,000
Cash(80,000X $7)...............................................
CommonStock(80,000X $2)..........................
ValueCommonStock
(80,000X $5)..............................................
560,000
OrganizationExpense..........................................
CommonStock(10,000X $2)..........................
ValueCommonStock
($50,000 $20,000).....................................
50,000
160,000
240,000
250,000
290,000
48,000
32,000
160,000
400,000
20,000
30,000
EXERCISE15-2 (Continued)
Sept.
15-8
Cash(10,000X $9)...............................................
CommonStock(10,000X $2)..........................
ValueCommonStock
(10,000X $7)..............................................
90,000
20,000
70,000
Nov.
Cash(1,000X $112).............................................
PreferredStock(1,000X $50)..........................
ValuePreferredStock
(1,000X $62)..............................................
112,000
50,000
62,000
(a)
Land($60X 25,000)........................................................
TreasuryStock($48X 25,000)..................................
Paid-in Capital fromTreasuryStock..........................
1,500,000
1,200,000
300,000
(b) One might use the cost of treasurystock. However, this is not a relevant measureof this
economicevent. Rather,it is a measureof a prior, unrelatedevent. The appraisedvalueof
the land is a reasonable alternative (if based on appropriate fair value estimation
techniques). However, it is an appraisal as opposed to a market-determined price. The
tradingpriceof the stockis probablythe best measureof fair valuein this transaction.
(a)
(1) UnamortizedBondIssueCosts
($340,000X $500/$850).........................................
Cash($850X 9,600).................................................
BondsPayable................................................
CommonStock(100,000X $5)...........................
Paid-in Capital in Excessof Par.........................
200,000
8,160,000
5,000,000
500,000
2,860,000
Assumesbondsareproperlypricedandissuedat par;theresidualattributedto common

stockhasa questionablemeasureof fair value.
15-9
EXERCISE15-4 (Continued)
Incrementalmethod
Lump-sumreceipt(9,600X $850)........................................
Allocatedto subordinateddebenture
(9,600X $500)................................................................
Balanceallocatedto commonstock....................................
$8,160,000
4,800,000
$3,360,000
Computationof commonstockandpaid-in capital

Less:Commonstock(10,000X $5 X 10)..............................
Paid-in capital in excessof par...........................................
$3,360,000
500,000
$2,860,000
Lump-sumreceipt(10,000X $850)......................................
Allocatedto debenture(10,000X $500)................................
$8,500,000
5,000,000
$3,500,000
Bondissuecost allocation
Total issuecost (400 X $850)..............................................
Less:Amountallocatedto bonds.......................................
Amountallocatedto common............................................
$340,000
200,000
$140,000
Investment banking costs 400 @ $850 = $340,000 allocate 5/8.5 to debentures and
3.5/8.5 to commonstock. Bondportionis bondissuecosts; commonstockportionis
a reduction of paid-in capital, which means that total paid-in capital is $3,360,000
($3,500,000 $140,000).
(2) Cash........................................................ 8,160,000
UnamortizedBondIssueCosts.................................
BondDiscount($5,000,000 $4,722,222)....................
BondsPayable................................................
CommonStock(100,000X $5)...........................
Theallocationbasedon fair valuefor oneunit is
Subordinateddebenture...................................
Commonstock(10 sharesX $40).......................
Total fair value................................................
188,889
277,778
5,000,000
500,000
3,126,667
$500
400
$900
Therefore5/9 is allocatedto thebondsand4/9 to thecommonstock.
15-10
$8,500,000X (5/9)
= $4,722,222 To Debentures
$8,500,000X (4/9)
= $3,777,778 To Common
$340,000X (5/9)
= $188,889
$340,000X (4/9)
= $151,111
Paid-in capital in excessof par
= $3,777,778 $500,000 $151,111
= $3,126,667
(b) One is not better than the other, but would depend on the relative reliability of the
valuations for the stocks and bonds. This question is presented to stimulate some
thoughtand classdiscussion.
(a)
Fair valueof Common(500 X $168)................................................

Fair valueof Preferred(100 X $210)................................................
$ 84,000
21,000
$105,000
Allocatedto Common: $84,000/$105,000X $100,000........................

Allocatedto Preferred: $21,000/$105,000X $100,000.......................
Total allocation...........................................................................
$ 80,000
20,000
$100,000
Cash............................................................................
CommonStock(500 X $10).......................................
Common($80,000 $5,000)...................................
PreferredStock(100 X $100).....................................
Preferred($20,000 $10,000)................................
100,000
5,000
75,000
10,000
10,000
(b) Lump-sumreceipt
Allocatedto common(500X $170)
Balanceallocatedto preferred
Cash............................................................................
CommonStock........................................................
Common($85,000 $5,000)...................................
PreferredStock.......................................................
Preferred($15,000 $10,000).................................
$100,000
85,000
$ 15,000
100,000
5,000
80,000
10,000
5,000
15-11
EXERCISE15-6 (2530minutes)(a).....Cash[(5,000X $45) $7,000]

CommonStock(5,000X $10)......................................
Paid-in Capital in Excessof Par..................................
(b) Land(1,000X $46).............................................................
CommonStock(1,000X $10)......................................
Paid-in Capital in Excess
of Par ($46,000 $10,000)........................................
218,000
50,000
168,000
46,000
10,000
36,000
Note: The fair value of the stock ($46,000) is used to value the exchange because it is a
moreobjectivemeasurethanthe appraisedvalueof the land($50,000).
(c)
TreasuryStock(500X $44).................................................
Cash........................................................................
22,000
22,000
# Assets
1.
D
2.
I
3.
I
Liabilities
NE
NE
NE
Stockholders
Equity
D
I
I
Paid-in
Capital
NE
NE
I
Retained
Earnings
NE
D
NE
Net
Income
NE
NE
NE
(a)
$1,000,000X 6% = $60,000; $60,000 X 3 = $180,000. The cumulative dividendis disclosed

in a noteto the stockholdersequitysection;it is not reportedas a liability.
(b) PreferredStock(3,000X $100).........................................

CommonStock(3,000X 7 X $10)..............................
Paid-in Capital in Excessof Par Value
Common............................................................
(c)
300,000
Paid-in capital
Preferredstock,$100par 6%, 10,000sharesissued.....................
Paid-in capital in excessof par (10,000X $7)...............................
15-12
210,000
90,000
$1,000,000
70,000
EXERCISE 15-11 (1520 minutes)

Item
Assets
Liabilities
Stockholders
Equity
Paid-in
Capital
Retained
Earnings
Net
Income
1.
2.
3.
4.
5.
6.
7.
8.
9.
I
NE
NE
NE
D
D
NE
NE
NE
NE
NE
I
NE
NE
D
I
NE
NE
I
NE
D
NE
D
NE
D
NE
NE
NE
NE
NE
NE
NE
NE
NE
I
NE
I
NE
D
NE
D
NE
D
D
NE
I
NE
NE
NE
D
NE
D
NE
NE
(a)
(b)
6/1
RetainedEarnings..................................
DividendsPayable.........................
6/14
No entryon date of record.
6/30
DividendsPayable..................................
Cash............................................
6,000,000
6,000,000
6,000,000
6,000,000
If this were a liquidatingdividend, the debit entry on the date of declarationwouldbe to

AdditionalPaid-in CapitalratherthanRetainedEarnings.
15-13
(a)
No entrysimplya memorandumnote indicating the numberof shares has increasedto

10
million
and
par
value
has
been
reduced
from
$10 to $5 per share.
(b)
RetainedEarnings($10 X 5,000,000)........................
CommonStockDividendDistributable...............
50,000,000
CommonStockDividendDistributable....................
CommonStock................................................
50,000,000
(c)
50,000,000
50,000,000
Stock dividends and splits serve the same function with regard to the securities
markets. Both techniquesallow the board of directors to increasethe quantity of shares
andreducesharepricesinto a desiredtradingrange.
For accounting purposes the 20%25%rule reasonably views large stock dividends as
substantive stock splits. In this case, it is necessary to capitalize par value with a stock
dividend because the number of shares is increased and the par value remains the
same.Earningsare capitalizedfor purelyproceduralreasons.
(a)
(b)
(c)
15-14
RetainedEarnings(10,000X $37)...........................
370,000
CommonStockDividendDistributable...................
CommonStock................................................
100,000
RetainedEarnings(200,000X $10).........................
2,000,000
CommonStockDividendDistributable...................
CommonStock................................................
2,000,000
100,000
270,000
100,000
2,000,000
2,000,000
No entry, the par value becomes$5 and the number of shares outstandingincreasesto
400,000.
(a)
RetainedEarnings..................................................
CommonStockDividendDistributable.............
Paid-in Capital in Excessof Par.......................
(60,000sharesX 5% X $39 = $117,000)
117,000
CommonStockDividendDistributable......................
CommonStock.............................................
30,000
30,000
87,000
30,000
(b)
No entry, memorandum note to indicate that par value is reduced to $2 and shares
outstandingare now300,000(60,000X 5).
(c)
January5, 2011
Investments(Bonds)...............................................
Gainon Appreciationof Investments
(Bonds).....................................................
PropertyDividendsPayable............................
January25, 2011
PropertyDividendsPayable....................................
Investments(Bonds).....................................
35,000
35,000
125,000
125,000
125,000
125,000
Total incomesinceincorporation.......................................
Less: Total cashdividendspaid........................................
Total valueof stockdividends................................
Currentbalanceof retainedearnings..................................
$287,000
$60,000
40,000
100,000
$187,000
The unamortized discount on bonds payable is shown as a contra liability; the gains on
treasurystocktransactionsare recordedas additionalpaid-in capital.
15-15
Teller Corporation
StockholdersEquity
December31, 2010
Capital stock
Preferredstock,$4 cumulative,par value$50
per share;authorized60,000shares,issued
andoutstanding10,000shares..................................
Commonstock,par value$1 per share;
authorized600,000shares,issued200,000
shares,andoutstanding190,000shares.....................
Total capital stock.............................................
Additionalpaid-in capital
In excessof par value.................................................
Fromsale of treasurystock.........................................
Total paid-in capital...........................................
Retainedearnings.................................................................
Total paid-in capital and retainedearnings...............................
Less:Treasurystock,10,000sharesat cost.............................
Total stockholdersequity...........................................
$ 500,000
200,000
700,000
1,000,000
160,000
1,860,000
201,000
2,061,000
170,000
$1,891,000
(a)
1.
2.
3.
15-16
DividendsPayablePreferred(2,000X $8)...................
DividendsPayableCommon(20,000X $2)..................
Cash............................................................
16,000
40,000
TreasuryStock......................................................
Cash(2,700X $40).........................................
108,000
Land.....................................................................
............................................................................
TreasuryStock(700X $40).............................
Paid-in Capital FromTreasuryStock...............
30,000
56,000
108,000
28,000
2,000
4.
5.
Cash(500 X $105)..................................................
PreferredStock(500 X $100)...........................
Preferred...................................................
52,500
RetainedEarnings(1,800*X $45)..............................
CommonStockDividendDistributable
(1,800X $5)................................................
Common...................................................
81,000
50,000
2,500
9,000
72,000
*(20,000 2,700+ 700= 18,000;18,000X 10%)

6.
7.
CommonStockDividendDistributable.....................
CommonStock.............................................
9,000
DividendsPayablePreferred
(2,500X $8)................................................
DividendsPayableCommon
(19,800*X $2).............................................
59,600
9,000
20,000
39,600
*(18,000+ 1,800)
(b)
ELIZABETHCOMPANY
StockholdersEquity
December31, 2011
Capital stock
Preferredstock,8%, $100par, 10,000shares
authorized,2,500sharesissuedand
outstanding.............................................................
Commonstock,$5 par, 100,000shares
authorized,21,800sharesissued,19,800
sharesoutstanding...................................................
Total capital stock................................................
Additionalpaid-in capital.............................................
Total paid-in capital..............................................
Retainedearnings..................................................................
$250,000
109,000
359,000
201,500
560,500
639,400
15-17
Total paid-in capital and retainedearnings...................................

Less:Costof treasurystock(2,000sharescommon)......................
Total stockholdersequity..........................................................
1,199,900
80,000
$1,119,900
Computations:
Preferredstock
$200,000+ $50,000= $250,000
Commonstock
$100,000+ $ 9,000= $109,000
Additionalpaid-in capital: $125,000+ $2,000+ $2,500+ $72,000= $201,500
Retainedearnings:$450,000 $81,000 $59,600+ $330,000= $639,400
Treasurystock$108,000 $28,000= $80,000
EXERCISE15-20 (15 minutes)

(a)
Rateof returnon commonstockequity:

$213,718
$875,000+ $575,000
Rateof interestpaid on bondspayable:
(b)
$213,718
$1,450,000
= 14.7%
$135,000
$1,500,000
= 9%
Potter Plastics, Inc. is trading on the equity successfully, since its return on common
stockequityis greaterthaninterestpaid on bonds.
Note:Someanalystsuseafter-tax interestexpenseto computethebondrate.
15-18
SOLUTIONSTO PROBLEMS
PROBLEM15-12
PENNCOMPANY
StockholdersEquity
June30, 2011
Capitalstock
8% preferredstock,$25 par value,
cumulativeand nonparticipating,
100,000sharesauthorized,40,000
sharesissuedand outstandingNoteA............................
$1,000,000
Commonstock,$10 par value,300,000

sharesauthorized,115,400shares
issuedwith 1,500sharesheld in the treasury.....................
Total capital stock....................................................
1,154,000
2,154,000
Additionalpaid-in capital
On preferredstock............................................................
On commonstock.............................................................
On treasurystock..............................................................
Total paid-in capital..................................................
$ 760,000
2,821,800*
1,500
Retainedearnings
Total paid-in capital and retainedearnings..................
Less: Treasurystock,1,500sharesat cost.................
Total stockholdersequity.....................................
3,583,300
5,737,300
409,200
6,146,500
58,500
$6,088,000
NoteA: PennCompanyis in arrearson the preferredstockin the amountof $40,000.

*AdditionalPaid-In Capital on CommonStock:
Issueof 85,000sharesX ($31 $10)
Plot of land
Issueof 20,000shares(3/1/09)
[20,000X ($42 $10)]
5,400sharesas dividend[5,400X ($52 $10)]
$1,785,000
170,000
640,000
226,800
$2,821,800
15-19
AccountBalances
CommonStock
850,000
50,000
200,000
54,000
1,154,000
Paid-in Capital in
Excessof ParC.S.
1,785,000
170,000
640,000
226,800
2,821,800
PreferredStock
1,000,000
Paid-in Capital in
Excessof ParPfd
760,000
TreasuryStock
78,000
19,500
Paid-in CapitalT.S.
1,500
58,500
RetainedEarnings
690,000
280,800
40,000
40,000
409,200
Note that the Penn Company is authorized to issue 300,000 shares of

$10 par value commonand 100,000 shares of $25 per value, cumulative and nonparticipating
preferred.
15-20
Entriessupportingthe balances.
CommonStock
1.
2.
3.
Entries
Cash....................................................... 2,635,000
CommonStock..............................................
850,000
1,785,000
Land.........................................................220,000
CommonStock..............................................
50,000
170,000
Cash.........................................................840,000
CommonStock..............................................
200,000
640,000
At the beginning of the year, Penn had 110,000 common shares outstanding, of which
85,000 shareswere issuedat $31 per share, resulting in $850,000 (85,000 shares at $10) of
common stock and $1,785,000 of additional paid-in capital on common stock (85,000
shares at $21). The 5,000 shares exchanged for a plot of land would be recorded at
$50,000of commonstockand$170,000of paid-in capital(usethe currentmarket value of the
land on July 24 to value the stock issuance). The 20,000 shares issued in 2009 at $42 a
shareresultedin $200,000of commonstockand $640,000of paid-in capital.
PreferredStock
Cash....................................................... 1,760,000
PreferredStock..............................................
Paid-in Capital in Excessof ParPfd................
1,000,000
760,000
TreasuryStock
Nov. 30
TreasuryStock...............................................
Cash.......................................................
78,000
June30 Cash.............................................................
Paid-in CapitalTreasuryStock.................
TreasuryStock.........................................
21,000
78,000
1,500
19,500
15-21
The 2,000 sharesof treasurystock purchasedresultedin a debit balance of treasury stock

of $78,000. Later, 500 shares were sold at $21,000, which brings the balance down to
$58,500(1,500sharesat $39 per share).
The sale of the treasuryshares above cost ($21,000 minus $19,500 cost) is recordedin a
separatepaid-in capitalamount.
StockDividend
Dec. 15
RetainedEarnings..........................................
CommonStock.........................................
Paid-in Capital in Excessof ParC.S..........
*Sharesoutstanding,beginningof year:
TreasuryStock
280,800**
54,000*
226,800
110,000
(2,000)
108,000X 5%=
5,400
X $10 Par
$54,000
**5,400SharesX $52
The 5% stock dividend resulted in an increase of 5,400 shares. Recall that there were
110,000 shares outstanding at the beginning of the year. The purchase of 2,000 treasury
shares occurred before the stock dividend, bringing the number of shares outstandingat
the time of the dividend (December 2010) to 108,000 shares. The resale of 500 treasury
sharesoccurredafter the stockdividend.
The issuanceof 40,000 shares of preferred at $44 resulted in $1,000,000(40,000 shares at
$25)of preferredstockoutstandingand$760,000(40,000sharesat $19) of paid-in capitalon
preferred.
RetainedEarnings
The cash dividendsonly affect the retained earnings. Note that the preferred stock is in
arrears for the dividends that should have been declared in June 2011. Ending retained
earnings is the beginning balance of $690,000 plus net income of $40,000, less the
preferred dividend of $40,000 and the commonstock dividend of $280,800 (5,400 shares
at $52), resultingin an endingbalanceof $409,200.
15-22

Chapter 15 Self Study Solutions

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Chapter 15 Self Study Solutions

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CHAPTER15

(b) Cash........................................................................ 8,200

Preferredstockholderswould receive $180,000(6% X $1,000,000X 3) and the remainder

($35,000 $10,000or 5,000X $5)

Assumesbondsareproperlypricedandissuedat par;theresidualattributedto common

Computationof commonstockandpaid-in capital

Therefore5/9 is allocatedto thebondsand4/9 to thecommonstock.

Fair valueof Common(500 X $168)................................................

Allocatedto Common: $84,000/$105,000X $100,000........................

EXERCISE15-6 (2530minutes)(a).....Cash[(5,000X $45) $7,000]

$1,000,000X 6% = $60,000; $60,000 X 3 = $180,000. The cumulative dividendis disclosed

(b) PreferredStock(3,000X $100).........................................

EXERCISE 15-11 (1520 minutes)

No entryon date of record.

If this were a liquidatingdividend, the debit entry on the date of declarationwouldbe to

No entrysimplya memorandumnote indicating the numberof shares has increasedto

*(20,000 2,700+ 700= 18,000;18,000X 10%)

Total paid-in capital and retainedearnings...................................

EXERCISE15-20 (15 minutes)

Rateof returnon commonstockequity:

Note:Someanalystsuseafter-tax interestexpenseto computethebondrate.

Commonstock,$10 par value,300,000

NoteA: PennCompanyis in arrearson the preferredstockin the amountof $40,000.

Note that the Penn Company is authorized to issue 300,000 shares of

The 2,000 sharesof treasurystock purchasedresultedin a debit balance of treasury stock

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