Fin-Acctg7-SM-Ch09
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Chapter 9 Stockholders’ Equity 563 Chapter 9 Stockholders’ Equity Short Exercises (5 min.) S 9-1 Corporation’s advantages: Continuous life and transferability of ownership Limited liability of the stockholders
Corporation’s disadvantages: Corporate taxation Government regulation
(5 min.) S 9-2 1. The stockholders hold ultimate power in a corporation. 2. The chairperson of the board of directors is usually the most powerful person in a corporation. Title is CEO.
3. The president is in charge of day-to-day operations. Title is COO.
4. The chief financial officer is in charge of accounting and finance. Title is CFO. 564
(5-10 min.) S 9-3 1. The common stockholders are the real owners of a corporation
2. Preferred stockholders have priority over common stockholders in (1) receipt of dividends and (2) receipt of assets if the corporation liquidates.
3. Common stockholders benefit more from a successful corporation because the preferred stockholders’ dividends are limited to a specified amount. The common stockholders take more risk so their potential for gains through an increase in the company’s stock price is unlimited.
(5-10 min.) S 9-4 The $61,938,000 was paid-in capital. It was not a profit and therefore had no effect on net income.
The par value of stock has no effect on total paid-in capital. Total paid-in capital is the total amount that stockholders have invested in (paid into) a corporation, including the par value of stock issued plus any additional paid-in capital. Chapter 9 Stockholders’ Equity 565
(10 min.) S 9-5 Millions Hewlett-Packard: Cash……………………………………………. 17,993 Common Stock……………………………. 27 Additional Paid-in Capital……………….. 17,966
Krispy Kreme Doughnuts: Cash……………………………………………. 298 Common Stock……………………………. 298 566
(10 min.) S 9-6 Case A — Issue stock and buy the assets in separate transactions:
Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Cash……………………………………….. 200,000 Common Stock (10,000 × $5)……..... 50,000 Paid-in Capital in Excess of Par…… 150,000 Issued stock.
Building…………………………………… 160,000 Equipment………………………………… 40,000 Cash…………………………………….. 200,000 Purchased plant assets.
Case B — Issue stock to acquire the assets: Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Building…………………………………… 160,000 Equipment………………………………... 40,000 Common Stock (10,000 × $5)………. 50,000 Paid-in Capital in Excess of Par…... 150,000 Issued stock to acquire building and equipment.
The balances in all accounts are the same: Building…………………………………… $160,000 Equipment……………………………….… 40,000 Common Stock…………………………... 50,000 Paid-in Capital in Excess of Par……… 150,000 Chapter 9 Stockholders’ Equity 567
(5-10 min.) S 9-7 Thousands Stockholders’ equity: Common stock, $.01 par, 600 million shares issued……………………………………………... $ 6 Paid-in capital in excess of par………………….. 198 Retained earnings………………………………….. 646 Other stockholders’ equity……………………….. (29) Total stockholders’ equity………………………... $821
(10 min.) S 9-8 Thousands a. Total revenues……………………………………….. $1,390 Total expenses……………………………………….. 805 Net income………………………………….………… $ 585
b. Accounts payable…………………………………… $ 420 Other current liabilities……………………………... 2,566 Long-term liabilities…………………………………. 25 Total liabilities………………………………………... $3,011
c. Total liabilities (from Req. b)………………………. $3,011 Total stockholders’ equity (from S 9-7)………….. 821 Total assets…………………………………………… $3,832 568
(5 min.) S 9-9 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Millions
Treasury Stock……………………………... 28 Cash……………………………………….. 28
Cash………………………………………….. 7 Treasury Stock………………………….. 3 Paid-in Capital from Treasury Stock Transactions………………………….. 4
Overall, stockholders’ equity decreased by $21 million ($28 million paid out minus $7 million received). Chapter 9 Stockholders’ Equity 569
(10 min.) S 9-10 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X6
Dec. 15 Retained Earnings ($100,000 × .05) + (25,000 × $.60)….. 20,000 Dividends Payable………………… 20,000 Declared a cash dividend…………… 20X7 Jan. 4 Dividends Payable…………………… 20,000 Cash…………………………………. 20,000 Paid the cash dividend.
During 20X6, Retained Earnings increased by $50,000 (net income of $70,000 − dividends of $20,000).
(5-10 min.) S 9-11 1. $150,000 (100,000 shares × $1.50 per share) 2. Preferred: $150,000 Common: $150,000
3. Cumulative, because it is not labeled noncumulative 4. Preferred: $450,000 ($150,000 × 3) Common: $350,000 ($800,000 − $450,000)
