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William V. Clark ACC 306 Intermediate Accounting II Instructor Harper February 22, 2014

E 18-18


Requirement 1

Retirement of common shares:

($ In millions)

Common stock (5 million shares x $1 par per share)

5

Paid-in capital – excess of par ($22-5-2)

15

Retained earnings (given)

2

Cash

22

Net income closed to retained earnings Income summary

88

Retained earnings (given)

88

Declaration of a cash dividend Retained earnings (given)

33

Cash

33

Declaration of a stock dividend Retained earnings (given)

20

Common stock (105-5) x4%) shares (in millions) at $1 par per share

Requirement 2

4


Brenner – Jude Corporation Statement of Retained Earnings For the year ended December 31, 2011 ($ In Millions)

Balance at January 1,

Net income for the year

$90

88

Deductions: Retirement of common stock

(2)

Cash dividends of $.33 per share

(33)

4% stock dividend

(20)

Balance at December 31,

E 18-19

April 1, 2011

$123


Retained earnings (300,000 shares at $30 per share)

9,000,000

Common stock (300,000 shares at $1 par per share)

300,000

Paid-In capital – excess of par (remainder) 10% x 3 million shares issued and outstanding

8,700,000

Alternatively:

April 1, 2011 Retained earnings

9,000,000

Common stock dividends distributable

300,000

Paid-In capital excess of par

8,000,000

June 1, 2011 Common stock dividends distributable Common stock

300,000 300,000

E 18-24

Determining the return on shareholders’ equity for 2011 is computed by dividing net income by average shareholders’ equity.


($200-$120) ÷ ($600 + $520) ÷ 2) = 14.29%

This is an increase in retained earnings that equals net income, being that no dividends were paid. The ratio is a measurement of profitability that investors, potential investors, and common shareholders’ use to measure the company’s ability to generate net income from the resources that the owners provide. However, due to shareholders’ equity being a measure of the book value of equity, investors relate earnings to the market value of equity by calculating the earnings price ratio.

P 18-5

Requirement 1


2011 November 1- Declaration date Retained earnings

84,000,000

Cash dividends payable (105 million shares at $.80 per share)

November 15 - Date of record

84,000,000

(no entry)

December 1 - Payment date Cash dividends payable

84,000,000

Cash

84,000,000

2012 March 1 – Declaration date Investment in Warner Corporation bonds

300,000

Gain on appreciation of investment (1.6 million – 1.3 million)

300,000

Retained earnings

1,600,000

Property dividends payable March 13 – Date of record

April 5 -

1,600,000 (no entry)

Payment date

Property dividends payable Investments in Warner Corporation Bonds

1,600,000 1,600,000


July 12 Retained earnings (5,250,000 x $21 per share)

110,250,000

Common stock (5,250,000 – 250,000) x $1 par

5,000,000

Paid-In capital – excess for par (5,250,000 – 250,000) x $20 per share

100,000,000

Cash (250,000 share at $21 market price per) (105,000,000 shares x 5%) =

5,250,000

November 1 – Declaration date Retained earnings

88,000,000

Cash dividends payable (110,000,000 x $.80)

88,000,000

(105,000,000 + 5,000,000) = 110,000,000)

November 15 – Date of record

(no entry)

December 1 – Payment date Cash dividends payable

88,000,000

Cash

88,000,000

2013

January 15 Paid-In capital – excess par Common stock (55,000,000 share at $1 par)

55,000,000 55,000,000


Alternatively: 110,000,000 million shares x 50% = 55,000,000 shares

November 1 – Declaration date Retained earnings

107,250,000

Cash dividends payable (165,000,000 x $.65)

107,250,000

(105,000,000 + 55,000,000 + 5,000,000)= 165,000,000 shares.)

December 1 – Payment date Cash dividends payable

107,250,000

Cash

107,250,000

Requirement 2

Branch-Rickie Corporation Statement of Shareholders’ Equity For the years ended December 31, 2011, 2012, and 2013 ($ in thousands) Total Common

Additional

Retained

Shareholders’


Stock

Earnings

Equity

970,000

1,705,000

Net income

330,000

330,000

Cash dividends

(84,000)

(84,000)

1,216,000

1,951,000

(1,600)

(1,600)

(110,250)

(5,250)

Net income

395,000

395,000

Cash dividends

(88,000)

(88,000)

1,411,150

2,251,150

Jan. 1, 2011

105,000

Dec. 31, 2011 105,000

Paid-in Capital 630,000

630,000

Property Dividends Common stock Dividends

Dec. 31, 2012

5,000

110,000

100,000

730,000

Total Common Stock

3 for 2 split Effected in the Form of a stock

Additional

Retained

Paid-in Capital

Earnings

Shareholders’ Equity


Dividend

55,000

(55,000)

Net income

(107,250)

Dec. 31, 2013

165,000

675,000

E 19-2

Requirement 1

$2.50

Fair value per share

X 12 million Shares awarded $30 million Fair value awarded

Requirement 2

1,758,900

(107,250) 2,598,900


Jan. 1, 2011

No entry

Requirement 3 Dec. 31, 2011

($In millions)

Compensation expense ($30 million ÷ 3 years)

10

Paid-in capital – restricted stock

10

Requirement 4 Dec. 31, 2012 Compensation expense ($30 million ÷ 3 years)

10

Paid-in capital – restricted stock

10

Requirement 5 Dec. 31, 2013 Compensation expense ($30 million ÷ 3 years)

10

Paid-in capital – restricted stock

10

Requirement 6 Dec. 31, 2013 Paid-in capital – restricted stock Common stock (12 million shares x $1 par)

30 12


Paid-in capital – excess of par (remainder)

E 19-4

Requirement 1

$22.50 X

4 million $90 million

fair value per share shares granted fair value award

Requirement 2

(No entry)

18


Requirement 3 ($ In millions) Compensation expense ($90 million á 3 years) Paid-in capital – restricted stock

30

Requirement 4

$22.50 x

4 million

x

90% 81 million

fair value share shares granted 100% - 10% forfeiture rate fair value award

E 19-5

Requirement 1

$3 X 4 million $12 million

30

fair value per option shares granted total compensation

Requirement 2

(No entry)


Requirement 3 (In millions) Compensation expense ($12 million ÷ 2 years)

6

Paid-in capital – stock options

6

Requirement 4

Compensation expense ($12 million ÷ 2 years)

6

Paid-in capital – stock options

6

E 19-9

Cash ($12 x 50,000 x 85%) Compensation expense ($12 x 50,000 x 15%)

510,000 90,000

Common stock ($1 x 50,000)

50,000

Paid-in capital – in excess of par ($11 x 50,000)

550,000


References:

Intermediate Accounting II

Spiceland, Sepe, and Nelson



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