Expert Answers

Reporting and Interpreting Owners’ Equity
Corporations rely on shareholder investments in the company to finance much of their operations. Therefore, it is important that the company report positive operating results to attract investors. Often, stock prices rise or fall based on how closely a company’s earnings match projections each quarter.
In your opinion, is this emphasis on quarterly results helpful or damaging to a company? Use specific examples to support your position.
A company publishes quarterly reports to show the results of its performance and it is also mandated by the SEC for registered companies.

Problem One
The financial statements for a company included the following information:

Common Stock


Retained Earnings


Net Income


Shares Issued


Shares Outstanding


Dividends Declared and Paid


The common stock was sold at a price of $30 per share.
Complete the following:
What is the amount of capital in excess of par?
What was the amount of retained earnings at the beginning of the year?
How many shares are in treasury stock (Treasury shares)?
Compute earnings per share.

Problem Two
Suppose a company had the following stock outstanding and retained earnings on December 31, 2011.

Common Stock (par $7; outstanding, 22,000 shares)


Preferred Stock, 10% (par $10; outstanding, 6,000 shares)


Retained Earnings


Suppose that the preferred stock is noncumulative, and the total amount of dividends is $29,000.
Compute the amounts of dividends, in total and per share, that would be payable to each class of stockholders.

Problem Three
At December 31st, 2011, the records at a corporation provided the following selected and incomplete data:

Common stock (par $1; no changes during the year)  
Shares authorized, 3,000,000      
Shares issued, ?: issue price $65 per share    
Shares held as treasury stock, 85,000 shares, cost $40 per share
Net income, $3,700,000        
Common stock account, $1,400,000      
Dividends declared and paid; $2 per share.    
Retained Earnings balance, January 1, 2011, $74,700,000  

Find the following:
the shares issued
the shared outstanding
the balance in the Capital in Excess of par account
the EPS on net income
The total dividends paid on common stock during 2011
The amount of treasury stock

Problem 4
On August 31, 2010, a company purchased 10,000 shares of stock for $30 per share. Management recorded the stock in the securities available for the sale portfolio. The following information pertains to the price per share of stock:









Prepare journal entries for the investments in SAS and the Net Unrealized Gains/Losses for each date given. Then compute the balance in the Net Unrealized Gains/Losses.
Survivor Company was formed on January 1, 2008 by selling and issuing 20,000 shares of common stock at $15 per share. On December 1, 2009, the company declared a cash dividend of $10,000 which will be paid in cash on January 15, 2010. The annual accounting period ends December 31.
A. Give the journal entry to record the sale and issuance of the common stock on January 1, 2008, for each of the following independent assumptions:
B. Give the journal entry to record the dividend declaration on December 1, 2009.
C. Show the journal entry to record payment of the dividend on January 15, 2010.

On January 1, 2009, Heitzman Company purchased the following shares as a long-term investment in available-for-sale securities:
Corporation                        Shares                             Percent Outstanding           Cost per Share
Maars                   10,000 common (no par)                        5%                                          $25
Nassif                    2,000 preferred (par $10)                       2%                                          $50
The market value of the stocks subsequently were as follows:
–                                                              Dec. 31, 2009                      Dec.31, 2010
Maars Corporation common stock            $24.00                                   $27.50
Nassif Corporation preferred stock          $51.00                                     $50.50
Calculate the balance in the account, “Allowance to Adjust Long-term Investments to Market,” on
A. December 31, 2009 and
B. December 31, 2010.