PE 11–1A

Year 1 Year 2 Year 3

Amount distributed............................... $72,000 $125,000 $160,000
Preferred dividend (18,000 shares)..... 72,000 108,000* 90,000*
Common dividend (50,000 shares)...... $ 0 $ 17,000 $ 70,000
*($18,000 + $90,000)
Dividends per share:
Preferred stock.............................. $4.00 $6.00 $5.00
Common stock.............................. None $0.34 $1.40

PE 11–1B
Year 1 Year 2 Year 3
Amount distributed............................... $18,000 $7,500 $35,000
Preferred dividend (10,000 shares)..... 10,000 7,500 12,500*
Common dividend (25,000 shares)...... $ 8,000 $ 0 $22,500
*($2,500 + $10,000)
Dividends per share:
Preferred stock.............................. $1.00 $0.75 $1.25
Common stock.............................. $0.32 None $0.90

PE 11–2A

Feb. 23 Cash....................................................................... 9,375,000

Common Stock................................................ 6,000,000
Paid-In Capital in Excess of Stated Value.... 3,375,000*
*[75,000 shares × ($125 – $80)]
Oct. 6 Cash....................................................................... 1,000,000
Preferred Stock............................................... 1,000,000
(20,000 shares × $50).
Nov. 4 Cash....................................................................... 708,000
Preferred Stock............................................... 600,000
Paid-In Capital in Excess of Par.................... 108,000*
*[12,000 shares × ($59 – $50)]

PE 11–2B
Aug. 7 Cash....................................................................... 525,000
Common Stock................................................ 525,000
(300,000 shares × $1.75).
Sept. 1 Cash....................................................................... 1,000,000
Preferred Stock............................................... 1,000,000
(25,000 shares × $40).
Nov. 2 Cash....................................................................... 520,000
Preferred Stock............................................... 400,000
Paid-In Capital in Excess of Par.................... 120,000*
*(10,000 shares × $12)

PE 11–3A
Oct. 15 Cash Dividends.................................................... 115,000
Cash Dividends Payable................................ 115,000
Nov. 14 No entry required.
Dec. 14 Cash Dividends Payable...................................... 115,000
Cash.................................................................. 115,000

PE 11–3B

Mar. 3 Cash Dividends.................................................... 275,000

Cash Dividends Payable................................ 275,000
Apr. 2 No entry required.
May 2 Cash Dividends Payable...................................... 275,000
Cash.................................................................. 275,000

PE 11–4A

Feb. 8 Stock Dividends (100,000 × 6% × $94)............... 564,000

Stock Dividends Distributable (6,000 × $60) 360,000
Paid-In Capital in Excess of Par—
Common Stock ($564,000 – $360,000).......... 204,000
Mar. 10 No entry required.
Apr. 11 Stock Dividends Distributable............................ 360,000
Common Stock................................................ 360,000
PE 11–4B

July 20 Stock Dividends (250,000 × 3% × $54)............... 405,000

Stock Dividends Distributable (7,500 × $15) 112,500
Paid-In Capital in Excess of Par—
Common Stock ($405,000 – $112,500).......... 292,500
Aug. 19 No entry required.
Sept. 18 Stock Dividends Distributable............................ 112,500
Common Stock................................................ 112,500

PE 11–5A

Mar. 8 Treasury Stock (13,000 × $42)............................. 546,000

Cash.................................................................. 546,000
May 16 Cash (9,500 × $50)................................................ 475,000
Treasury Stock (9,500 × $42)......................... 399,000
Paid-In Capital from Sale of
Treasury Stock [9,500 × ($50 – $42)]............. 76,000
Aug. 30 Cash (3,500 × $40)................................................ 140,000
Paid-In Capital from Sale of
Treasury Stock [3,500 × ($42 – $40)].................. 7,000
Treasury Stock (3,500 × $42)......................... 147,000

PE 11–5B

Sept. 9 Treasury Stock (9,000 × $24)............................... 216,000

Cash.................................................................. 216,000
Oct. 7 Cash (4,800 × $29)................................................ 139,200
Treasury Stock (4,800 × $24)......................... 115,200
Paid-In Capital from Sale of
Treasury Stock [4,800 × ($29 – $24)]............. 24,000
Dec. 20 Cash (4,200 × $22)................................................ 92,400
Paid-In Capital from Sale of
Treasury Stock [4,200 × ($24 – $22)].................. 8,400
Treasury Stock (4,200 × $24)......................... 100,800
PE 11–6A

Stockholders’ Equity
Paid-in capital:
Common stock, $120 par (50,000 shares
authorized, 40,000 shares issued)................. $4,800,000
Excess of issue price over par............................. 600,000 $ 5,400,000
From sale of treasury stock.................................. 59,000
Total paid-in capital......................................... $ 5,459,000
Retained earnings....................................................... 7,138,500
Total......................................................................... $12,597,500
Deduct treasury stock (2,500 shares at cost).......... 287,500
Total stockholders’ equity......................................... $12,310,000

PE 11–6B

Stockholders’ Equity
Paid-in capital:
Common stock, $15 par (200,000 shares
authorized, 160,000 shares issued)............... $2,400,000
Excess of issue price over par............................. 480,000 $2,880,000
From sale of treasury stock.................................. 100,000
Total paid-in capital......................................... $2,980,000
Retained earnings....................................................... 5,275,000
Total......................................................................... $8,255,000
Deduct treasury stock (24,000 shares at cost)........ 336,000
Total stockholders’ equity......................................... $7,919,000

PE 11–7A

EMMY LEADERS INC.

Retained Earnings Statement
For the Year Ended August 31, 2012
Retained earnings, September 1, 2011..................... $740,000
Net income................................................................... $145,000
Less: dividends declared........................................... 35,000
Increase in retained earnings.................................... 110,000
Retained earnings, August 31, 2012......................... $850,000
PE 11–7B

AUCKLAND CRUISES INC.

Retained Earnings Statement
For the Year Ended April 30, 2012
Retained earnings, May 1, 2011......................................... $3,180,000
Net income........................................................................... $515,000
Less dividends declared.................................................... 225,000
Increase in retained earnings............................................ 290,000
Retained earnings, April 30, 2012...................................... $3,470,000

PE 11–8A
Net Income  Preferred Dividends
a. 2012: Earning per Share = Avg. Number of Common Shares Outstanding

$117,000  $18,000
= 50,000 shares
$99,000
= 50,000 shares = $1.98

Net Income  Preferred Dividends

2011: Earning per Share = Avg. Number of Common Shares Outstanding

$104,000  $18,000
= 40,000 shares
$86,000
= 40,000 shares = $2.15

b. The decrease in the earnings per share from $2.15 to $1.98 indicates an
unfavorable trend in the company’s profitability.
PE 11–8B
Net Income  Preferred Dividends
a. 2012: Earning per Share = Avg. Number of Common Shares Outstanding

$971,000  $35,000
= 120,000 shares
$936,000
= 120,000 shares = $7.80

Net Income  Preferred Dividends

2011: Earning per Share = Avg. Number of Common Shares Outstanding

$692,000  $35,000
= 90,000 shares
$657,000
= 90,000 shares = $7.30

b. The increase in the earnings per share from $7.30 to $7.80 indicates a
favorable trend in the company’s profitability.
 EXERCISES

Ex. 11–1
1st Year 2nd Year 3rd Year 4th Year
a. Total dividend declared.................. $ 22,500 $ 28,800 $ 40,100 $ 77,000
Preferred dividend (current).......... $ 22,500 $ 27,000* $ 27,000 $ 27,000
Preferred dividend in arrears........ — 1,800 2,700 —
b. Total preferred dividends............... $ 22,500 $ 28,800 $ 29,700 $ 27,000
Preferred shares outstanding........ ÷ 18,000 ÷ 18,000 ÷ 18,000 ÷ 18,000
Preferred dividend per share......... $ 1.25 $ 1.60 $ 1.65 $ 1.50

*$27,000 = 18,000 shares × $75 × 2%

Dividend for common shares
(a. – b.)............................................. $ — $ — $ 10,400 $ 50,000
Common shares outstanding........ ÷ 40,000 ÷ 40,000
Common dividend per share......... $ 0.26 $ 1.25

Ex. 11–2
1st Year 2nd Year 3rd Year 4th Year
a. Total dividend declared.................. $ 7,500 $ 10,500 $ 25,000 $ 60,000
Preferred dividend (current).......... $ 7,500 $ 8,000 $ 10,000* $ 10,000
Preferred dividend in arrears........ — 2,500 2,000 —
b. Total preferred dividends............... $ 7,500 $ 10,500 $ 12,000 $ 10,000
Preferred shares outstanding........ ÷ 25,000 ÷ 25,000 ÷ 25,000 ÷ 25,000
Preferred dividend per share......... $ 0.30 $ 0.42 $ 0.48 $ 0.40

*$10,000 = 25,000 shares × $40 × 1%

Dividend for common shares
(a. – b.)............................................. $ — $ — $ 13,000 $ 50,000
Common shares outstanding........ ÷ 50,000 ÷ 50,000
Common dividend per share......... $ 0.26 $ 1.00
Ex. 11–3
a. Jan. 14 Cash................................................................ 768,000
Common Stock......................................... 600,000
Paid-In Capital in Excess of Par—
Common Stock................................... 168,000
Mar. 17 Cash................................................................ 660,000
Preferred Stock......................................... 600,000
Paid-In Capital in Excess of Par—
Preferred Stock................................... 60,000

b. $1,428,000 ($768,000 + $660,000)

Ex. 11–4
a. July 12 Cash................................................................ 2,700,000
Common Stock......................................... 1,200,000
Paid-In Capital in Excess of
Stated Value........................................ 1,500,000
Nov. 18 Cash................................................................ 4,000,000
Preferred Stock......................................... 3,600,000
Paid-In Capital in Excess of Par—
Preferred Stock................................... 400,000
b. $6,700,000 ($2,700,000 + $4,000,000)

Ex. 11–5

Apr. 15 Land......................................................................... 525,000

Common Stock................................................. 350,000
Paid-In Capital in Excess of Par..................... 175,000
Ex. 11–6
a. Cash.................................................................................. 1,000,000
Common Stock (20,000 × $50).................................. 1,000,000
b. Organizational Expenses............................................... 50,000
Common Stock (1,000 × $50).................................... 50,000
Cash.................................................................................. 750,000
Common Stock (15,000 × $50).................................. 750,000
c. Land.................................................................................. 200,000
Building............................................................................ 500,000
Interest Payable*........................................................ 2,500
Mortgage Note Payable............................................. 300,000
Common Stock........................................................... 397,500
*An acceptable alternative would be to credit Interest Expense.

Ex. 11–7

Buildings................................................................................. 910,000
Land......................................................................................... 350,000
Preferred Stock................................................................. 1,200,000
Paid-In Capital in Excess of Par—Preferred Stock....... 60,000
Cash......................................................................................... 1,584,000
Common Stock................................................................. 1,500,000
Paid-In Capital in Excess of Par—Common Stock....... 84,000

Ex. 11–8
Jan. 30 Cash........................................................................ 6,000,000
Common Stock (300,000 × $20)...................... 6,000,000
31 Organizational Expenses...................................... 15,000
Common Stock (750 × $20)............................. 15,000
Feb. 21 Land......................................................................... 150,000
Buildings................................................................. 460,000
Equipment.............................................................. 90,000
Common Stock (32,000 × $20)........................ 640,000
Paid-In Capital in Excess of Par—
Common Stock............................................ 60,000
Mar. 2 Cash........................................................................ 1,162,500
Preferred Stock (15,000 × $75)........................ 1,125,000
Paid-In Capital in Excess of Par—
Preferred Stock........................................... 37,500
Ex. 11–9
Apr. 1 Cash Dividends...................................................... 365,850
Cash Dividends Payable.................................. 365,850
May 1 No entry required.
June 3 Cash Dividends Payable....................................... 365,850
Cash................................................................... 365,850

Ex. 11–10

a. (1) Stock Dividends......................................................... 554,400*

Stock Dividends Distributable (4,200 × $125)... 525,000
Paid-In Capital in Excess of Par—
Common Stock................................................ 29,400
*[($17,500,000/$125) × 3%] × $132
(2) Stock Dividends Distributable................................. 525,000
Common Stock..................................................... 525,000
b. (1) $18,060,000 ($17,500,000 + $560,000)
(2) $75,496,000
(3) $93,556,000 ($18,060,000 + $75,496,000)

c. (1) $18,614,400 ($17,500,000 + $560,000 + $525,000 + $29,400)

(2) $74,941,600 ($75,496,000 – $554,400)
(3) $93,556,000 ($18,614,400 + $74,941,600)

Ex. 11–11
a. Apr. 27 Treasury Stock............................................... 900,000
Cash........................................................... 900,000
July 13 Cash................................................................ 648,000
Treasury Stock (9,000 × $60).................. 540,000
Paid-In Capital from Sale of
Treasury Stock.................................... 108,000
Oct. 8 Cash................................................................ 354,000
Paid-In Capital from Sale of
Treasury Stock......................................... 6,000
Treasury Stock (6,000 × $60).................. 360,000
b. $102,000 ($108,000 – $6,000) credit
Ex. 11–11 (Concluded)

c. Deer Creek may have purchased the stock to support the market price of the
stock, to provide shares for resale to employees, or for reissuance to
employees as a bonus according to stock purchase agreements.

Ex. 11–12
a. June 19 Treasury Stock (24,000 × $64)...................... 1,536,000
Cash........................................................... 1,536,000
Aug. 30 Cash (19,000 × $68)....................................... 1,292,000
Treasury Stock (19,000 × $64)................ 1,216,000
Paid-In Capital from Sale
of Treasury Stock............................... 76,000
Sept. 6 Cash (3,000 × $70)......................................... 210,000
Treasury Stock (3,000 × $64).................. 192,000
Paid-In Capital from Sale
of Treasury Stock............................... 18,000
b. $94,000 ($76,000 + $18,000) credit

c. $128,000 (2,000 × $64) debit

d. The balance in the treasury stock account is reported as a deduction from

the total of the paid-in capital and retained earnings.

Ex. 11–13
a. July 5 Treasury Stock (12,500 × $80)...................... 1,000,000
Cash........................................................... 1,000,000
Nov. 3 Cash (7,000 × $85)......................................... 595,000
Treasury Stock (7,000 × $80).................. 560,000
Paid-In Capital from Sale of
Treasury Stock.................................... 35,000
Dec. 10 Cash (5,500 × $78)......................................... 429,000
Paid-In Capital from Sale of
Treasury Stock......................................... 11,000
Treasury Stock (5,500 × $80).................. 440,000
b. $24,000 ($35,000 – $11,000) credit

c. Stockholders’ Equity section

Ex. 11–13 (Concluded)

d. Conyers Water Inc. may have purchased the stock to support the market
price of the stock, to provide shares for resale to employees, or for
reissuance to employees as a bonus according to stock purchase
agreements.

Ex. 11–14

Stockholders’ Equity
Paid-in capital:
Preferred 1% stock, $75 par
(100,000 shares authorized,
60,000 shares issued)................ $4,500,000
Excess of issue price over par....... 180,000 $4,680,000
Common stock, no par, $8 stated
value (500,000 shares author-
ized, 300,000 shares issued)..... $2,400,000
Excess of issue price over par....... 450,000 2,850,000
From sale of treasury stock............ 190,000
Total paid-in capital.................... $7,720,000

Ex. 11–15

Stockholders’ Equity
Paid-in capital:
Common stock, $90 par
(50,000 shares authorized,
30,000 shares issued)................ $2,700,000
Excess of issue price over par....... 120,000 $ 2,820,000
From sale of treasury stock............ 36,000
Total paid-in capital.................... $ 2,856,000
Retained earnings................................. 9,173,000
Total................................................... $12,029,000
Deduct treasury stock
(4,000 shares at cost)...................... 352,000
Total stockholders’ equity................... $11,677,000
Ex. 11–16

Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $125 par
(60,000 shares authorized,
40,000 shares issued)................ $5,000,000
Excess of issue price over par....... 280,000 $ 5,280,000
Common stock, $8 par
(500,000 shares authorized,
375,000 shares issued).............. $3,000,000
Excess of issue price over par....... 525,000 3,525,000
From sale of treasury stock............ 175,000
Total paid-in capital.................... $ 8,980,000
Retained earnings................................. 23,120,000
Total................................................... $32,100,000
Deduct treasury common stock
(88,000 shares at cost).................... 792,000
Total stockholders’ equity................... $31,308,000

Ex. 11–17

SANDUSKY CORPORATION
Retained Earnings Statement
For the Year Ended October 31, 2012
Retained earnings, November 1, 2011.............................. $796,750
Net income........................................................................... $215,000
Less dividends declared.................................................... 45,000
Increase in retained earnings............................................ 170,000
Retained earnings, October 31, 2012................................ $966,750
Ex. 11–18

1. Retained earnings is not part of paid-in capital.

2. The cost of treasury stock should be deducted from the total stockholders’
equity.
3. Dividends payable should be included as part of current liabilities and not as
part of stockholders’ equity.
4. Common stock should be included as part of paid-in capital.
5. The amount of shares of common stock issued of 500,000 times the par value
per share of $14 should be extended as $7,000,000, not $7,600,000. The
difference, $600,000, probably represents paid-in capital in excess of par.
6. Organizing costs should be expensed when incurred and not included as a
part of stockholders’ equity.

One possible corrected Stockholders’ Equity section of the balance sheet is as

follows:
Stockholders’ Equity
Paid-in capital:
Preferred 1% stock, $200 par
(25,000 shares authorized and issued).................. $5,000,000
Excess of issue price over par..................................... 75,000 $ 5,075,000
Common stock, $14 par (800,000 shares authorized,
500,000 shares issued)............................................ $7,000,000
Excess of issue price over par..................................... 600,000 7,600,000
Total paid-in capital.................................................. $12,675,000
Retained earnings............................................................... 41,500,000*
$54,175,000
Deduct treasury stock (45,000 shares at cost)................ 648,000
Total stockholders’ equity................................................. $53,527,000
*$41,750,000 – $250,000. Since the organizing costs should have been
expensed, the retained earnings should be $250,000 less.
Ex. 11–19

LIFE’S GREETING CARDS INC.

Statement of Stockholders’ Equity
For the Year Ended December 31, 2012
Paid-In
Common Capital in
Stock Excess Treasury Retained
$50 Par of Par Stock Earnings Total
Balance, Jan. 1, 2012...... $3,000,000 $480,000 — $5,220,000 $ 8,700,000
Issued 27,000 shares
of common stock........ 1,350,000 324,000 1,674,000
Purchased 4,500
shares as treasury
stock............................ $(216,000) (216,000)
Net income...................... 765,000 765,000
Dividends......................... (150,000) (150,000)
Balance, Dec. 31, 2012... $4,350,000 $804,000 $(216,000) $5,835,000 $10,773,000

Ex. 11–20

a. 500,000 shares (100,000 × 5)

b. $40 per share ($200/5)

Ex. 11–21

Stockholders’
Assets Liabilities Equity
(1) Authorizing and issuing stock
certificates in a stock split 0 0 0
(2) Declaring a stock dividend 0 0 0
(3) Issuing stock certificates for
the stock dividend declared
in (2) 0 0 0
(4) Declaring a cash dividend 0 + –
(5) Paying the cash dividend
declared in (4) – – 0
Ex. 11–22
Feb. 10 No entry required. The stockholders’ ledger would be revised to record
the increased number of shares held by each stockholder.
May 1 Cash Dividends...................................................... 116,000*
Cash Dividends Payable.................................. 116,000
*[(40,000 shares × $2) + (300,000 shares
× $0.12)] = $80,000 + $36,000 = $116,000
June 15 Cash Dividends Payable....................................... 116,000
Cash................................................................... 116,000
Nov. 1 Cash Dividends...................................................... 104,000*
Cash Dividends Payable.................................. 104,000
*[(40,000 shares × $2) + (300,000 shares
× $0.08)] = $80,000 + $24,000 = $104,000
1 Stock Dividends..................................................... 168,000**
Stock Dividends Distributable (6,000 × $20) 120,000
Paid-In Capital in Excess of
Par—Common Stock........................................ 48,000
**(300,000 shares × 2% × $28) = $168,000
Dec. 15 Cash Dividends Payable....................................... 104,000
Cash................................................................... 104,000
15 Stock Dividends Distributable............................. 120,000
Common Stock................................................. 120,000

Ex. 11–23
Net Income  Preferred Dividends
Earnings per Share = Avg. Number of Common Shares Outstanding

$133,750   $4 per share  10,000 shares 

Earnings per Share =
25,000 shares

Earnings per Share = $3.75 per share

Ex. 11–24
Net Income  Preferred Dividends
a. Earnings per Share = Avg. Number of Common Shares Outstanding

$11,293  $192
2009 Earnings per Share = 2,952 shares

= $3.76 per share

$11,798  $176
2008 Earnings per Share = 3,081 shares

= $3.77 per share

$10,063  $161
2007 Earnings per Share = 3,159 shares

= $3.13 per share

b. 2009 2008 2007

Earnings per share.......................... $3.76 $3.77 $3.13
As a percent of 2007 (base year).... 120% 120% 100%
Net income........................................ $11,293 $11,798 $10,063
As a percent of 2005 (base year).... 112% 117% 100%

The earnings per share growth for 2008 was slightly higher (120%) than the
net income (117%) growth. While net income declined from 117% to 112% of
the 2007 base year, earnings per share remained the same as 2008 (120%) of
the base year. The number of common shares outstanding remained
relatively the same during the three-year period.
Ex. 11–25

a. OfficeMax:
Net Income  Preferred Dividends
Earnings per Share = Average Number of Common Shares Outstandin g

$667,000  $2,818,000
Earnings per Share = 77,483,000 shares

Earnings per Share = $(0.03) per share

Staples:
Net Income  Preferred Dividends
Earnings per Share = Average Number of Common Shares Outstandin g

$738,671,0 00
Earnings per Share = 721,838,00 0 shares

Earnings per Share = $1.02 per share

b. Staples’ net income of $738,671,000 is much greater than OfficeMax’s net

income of $667,000. This is because Staples is a much larger business than
OfficeMax. Staples also has over 9 times more shares of common stock
outstanding than does OfficeMax. Regardless of these size differences,
however, earnings per share can be used to compare their relative earnings.
As shown above, Staples has a better earnings per share of $1.02 than does
OfficeMax, which has negative earnings per share of $0.03.