Using the following accounts and balances, prepare the Stockholders’ Equity section of the balance sheet. Five-hundred thousand shares of common stock are authorized, and 40,000 shares have been reacquired.
Common Stock, $120 par $48,000,000Paid-In Capital from Sale of Treasury Stock 4,500,000Paid-In Capital in Excess of Par—Common Stock 6,400,000Retained Earnings 63,680,000Treasury Stock 5,200,000Answer:
Stockholders’ EquityPaid-in capital:Common stock, $120 par (500,000 sharesauthorized, 400,000 shares issued) $48,000,000Excess of issue price over par 6,400,000 $ 54,400,000From sale of treasury stock 4,500,000Total paid-in capital $ 58,900,000Retained earnings 63,680,000Total $122,580,000Deduct treasury stock (40,000 shares at cost) 5,200,000Total stockholders’ equity $117,380,000
Noric Cruises Inc. reported the following results for the year ended October 31, 2014:
Retained earnings, November 1, 2013 $12,400,000Net income 2,350,000Cash dividends declared 175,000Stock dividends declared 300,000Prepare a retained earnings statement for the fiscal year ended October 31, 2014.Answer:
NORIC CRUISES INC.Retained Earnings StatementFor the Year Ended October 31, 2014Retained earnings, November 1, 2013 $12,400,000Net income $2,350,000Less dividends declared 475,000Increase in retained earnings 1,875,000Retained earnings, October 31, 2014 $14,275,000
Rockwell Inc. reported the following results for the year ended June 30, 2014:
Retained earnings, July 1, 2013 $3,900,000Net income 714,000Cash dividends declared 100,000Stock dividends declared 50,000Prepare a retained earnings statement for the fiscal year ended June 30, 2014.Answer:
ROCKWELL INC.Retained Earnings StatementFor the Year Ended June 30, 2014Retained earnings, July 1, 2013 $3,900,000Net income $714,000Less dividends declared 150,000Increase in retained earnings 564,000Retained earnings, June 30, 2014 $4,464,000
Financial statement data for the years ended December 31 for Dovetail Corporation are shown below.
2014 2013
Net income $448,750 $376,000
Preferred dividends $40,000 $40,000
Average number of common shares outstanding 75,000 shares 60,000 shares
a. Determine the earnings per share for 2014 and 2013.b. Does the change in the earnings per share from 2013 to 2014 indicate a favorable or an unfavorable trend?Answer:
a. 2014: Earnings per Share = Avg. Number of Common Shares Outstanding$448,750 – $40,000 = 75,000 shares$408,750 = 75,000 shares= $5.452013: Earnings per Share = Net Income – Preferred DividendsAvg. Number of Common Shares Outstanding$376,000 – $40,000 = 60,000 shares$336,000 = 60,000 shares= $5.60b. The decrease in the earnings per share from $5.60 to $5.45 indicates anunfavorable trend in the company’s profitability.
Financial statement data for the years ended December 31 for Black Bull Inc. are shown below.
2014 2013Net income $2,485,700 $1,538,000Preferred dividends $50,000 $50,000Average number of common shares outstanding 115,000 shares 80,000 sharesa. Determine the earnings per share for 2014 and 2013.b. Does the change in the earnings per share from 2013 to 2014 indicate a favorable or an unfavorable trend?Answer:
a. 2014: Earnings per Share = Net Income – Preferred DividendsAvg. Number of Common Shares Outstanding$2,485,700 – $50,000 = 115,000 shares$2,435,700 = 115,000 shares= $21.182013: Earnings per Share = Net Income – Preferred DividendsAvg. Number of Common Shares Outstanding$1,538,000 – $50,000 = 80,000 shares$1,488,000 = 80,000 shares= $18.60b. The increase in the earnings per share from $18.60 to $21.18 indicates afavorable trend in the company’s profitability.
Bridger Ski Co. has developed a tract of land into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts. (a) Should the tree cutting, land clearing, and grading costs of constructing the ski slopes be debited to the land account? (b) If such costs are debited to Land, should they be depreciated?Answer:a. Yes. All expenditures incurred for the purpose of making the land suitable for its intended use should be debited to the land account.b. No. Land is not depreciated.
Dick Gaines owns and operates Gaines Print Co. During February, Gaines Print Co. incurred the following costs in acquiring two printing presses. One printing press was new, and the other was used by a business that recently filed for bankruptcy.Costs related to new printing press:1. Fee paid to factory representative for installation2. Freight3. Insurance while in transit4. New parts to replace those damaged in unloading5. Sales tax on purchase price6. Special foundationCosts related to used printing press:7. Fees paid to attorney to review purchase agreement8. Freight9. Installation10. Repair of damage incurred in reconditioning the press11. Replacement of worn-out parts12. Vandalism repairs during installationa. Indicate which costs incurred in acquiring the new printing press should be debited to the asset account.b. Indicate which costs incurred in acquiring the used printing press should be debited to the asset account.Answer:a. New printing press: 1, 2, 3, 5, 6b. Used printing press: 7, 8, 9, 11
Huffine Lines Co. incurred the following costs related to trucks and vans used in operating its delivery service:1. Changed the oil and greased the joints of all the trucks and vans.2. Changed the radiator fluid on a truck that had been in service for the past four years.3. Installed a hydraulic lift to a van.4. Installed security systems on four of the newer trucks.5. Overhauled the engine on one of the trucks purchased three years ago.6. Rebuilt the transmission on one of the vans that had been driven 40,000 miles. The van was no longer under warranty.7. Removed a two-way radio from one of the trucks and installed a new radio with a greater range of communication.8. Repaired a flat tire on one of the vans.9. Replaced a truck’s suspension system with a new suspension system that allows for the delivery of heavier loads.10. Tinted the back and side windows of one of the vans to discourage theft of contents.Classify each of the costs as a capital expenditure or a revenue expenditure.Answer:Capital expenditures: 3, 4, 5, 6, 7, 9, 10Revenue expenditures: 1, 2, 8
Intermountain Delivery Company acquired an adjacent lot to construct a new warehouse, paying $100,000 and giving a short-term note for $700,000. Legal fees paid were $5,000, delinquent taxes assumed were $18,500, and fees paid to remove an old building from the land were $12,000. Materials salvaged from the demolition of the building were sold for $4,000. A contractor was paid $950,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet.Answer:
Initial cost of land ($100,000 + $700,000) ...................................... $800,000Plus: Legal fees ........................................................................... $ 5,000Delinquent taxes ............................................................... 18,500Demolition of building ..................................................................... 12,000 35,500$835,500Less salvage of materials ............................................................... 4,000Cost of land....................................................................................... $831,500
Classify each of the costs as a capital expenditure or a revenue expenditure.Jackie Fox owns and operates Platinum Transport Co. During the past year, Jackie incurred the following costs related to an 18-wheel truck:1. Changed engine oil.2. Installed a television in the sleeping compartment of the truck.3. Installed a wind deflector on top of the cab to increase fuel mileage.4. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.5. Replaced a headlight that had burned out.6. Replaced a shock absorber that had worn out.7. Replaced fog and cab light bulbs.8. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.9. Removed the old CB radio and replaced it with a newer model with a greater range.10. Replaced the old radar detector with a newer model that is fastened to the truck with a locking device that prevents its removal.Classify each of the costs as a capital expenditure or a revenue expenditure.Answer:Capital expenditures: 2, 3, 4, 8, 9, 10Revenue expenditures: 1, 5, 6, 7
Tri-City Ironworks Co. reported $44,500,000 for equipment and $29,800,000 for accumulated depreciation—equipment on its balance sheet.Does this mean (a) that the replacement cost of the equipment is $44,500,000 and (b) that $29,800,000 is set aside in a special fund for the replacement of the equipment? Explain.Answer:a. No. The $44,500,000 represents the original cost of the equipment. Its replacement cost, which may be more or less than $44,500,000, is not reported in the financial statements.b. No. The $29,800,000 is the accumulation of the past depreciation charges on the equipment. The recognition of depreciation expense has no relationship to the cash account or accumulation of cash funds.
Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage: (a) 4 years, (b) 8 years, (c) 10 years, (d) 16 years, (e) 25 years, (f) 40 years, (g) 50 years.Answer:(a) 25% (1/4), (b) 12.5% (1/8), (c) 10% (1/10), (d) 6.25% (1/16), (e) 4% (1/25),(f) 2.5% (1/40), (g) 2% (1/50)
