Demonstration Problem

Chapter 8 – Problem 27

Calculate Missing Amounts – Dividends, Total

Shares, and Per Share Information

AccountingWhat the Numbers Mean 7e

Problem Definition• Allyn, Inc., has the following owners’ equity section in its

November 30, 2007, balance sheet:

Paid-in capital: 12% preferred stock, $60 par value, 1,500 shares authorized, issued, and outstanding . . . . . . . . . . . . . . . . . . . . $ ? Common stock, $8 par value, 100,000 shares authorized, ? shares issued, ? shares outstanding. . . . . . . . . . . . . . . . . . 240,000 Additional paid-in capital on common stock . . . . . . . . . . . . . . . 540,000 Additional paid-in capital from treasury stock . . . . . . . . . . . . . . 13,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,000 Less: Treasury stock, at cost (2,000 shares of common). . . . . . . . (18,000) Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ?

a. Calculate the amount of the total annual dividend requirement on preferred stock.

b. Calculate the amount that should be shown on the balance sheet for preferred stock.

c. Calculate the number of shares of common stock that are issued and the number of shares of common stock that are outstanding.

d. On January 1, 2007, the firm’s balance sheet showed common stock of $210,000 and additional paid-in capital on common stock of $468,750. The only transaction affecting these accounts during 2007 was the sale of some common stock. Calculate the number of shares that were sold and the selling price per share.

Problem Definition

e. Describe the transaction that resulted in the additional paid-in capital from treasury stock.

f. The retained earnings balance on January 1, 2007, was $90,300. Net income for the past 11 months has been $24,000. Preferred stock dividends for all of 2007 have been declared and paid. Calculate the amount of dividends on common stock during the first 11 months of 2007.

Problem Definition

Problem Solution

a. Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share

$60

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12%

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12% = $7.20

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12% = $7.20

Number of shares outstanding =

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12% = $7.20

Number of shares outstanding = 1,500

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12% = $7.20

Number of shares outstanding = 1,500

Annual dividend requirement =

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share =

Par value per share * dividend rate =

$60 * 12% = $7.20

Number of shares outstanding = 1,500

Annual dividend requirement =

$7.20 par value

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share = Par value per share * dividend rate = $60 * 12% = $7.20

Number of shares outstanding = 1,500

Annual dividend requirement =

$7.20 par value * 1,500 shares outstanding

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

Problem Solution

a.

Annual dividend per share = Par value per share * dividend rate = $60 * 12% = $7.20

Number of shares outstanding = 1,500

Annual dividend requirement =

$7.20 par value * 1,500 shares outstanding = $10,800

Annual dividend requirement = Annual dividend per share * Number of shares outstanding

a. Calculate the amount of the total annual dividend requirement on preferred stock.

b. Calculate the amount that should be shown on the balance sheet for preferred stock.

c. Calculate the number of shares of common stock that are issued and the number of shares of common stock that are outstanding.

d. On January 1, 2007, the firm’s balance sheet showed common stock of $210,000 and additional paid-in capital on common stock of $468,750. The only transaction affecting these accounts during 2007 was the sale of some common stock. Calculate the number of shares that were sold and the selling price per share.

Problem Definition

Problem Solution

b. Balance sheet amount =

Problem Solution

b. Balance sheet amount =

$60 par value

Problem Solution

b. Balance sheet amount =

$60 par value * 1,500 shares issued =

Problem Solution

b. Balance sheet amount =

$60 par value * 1,500 shares issued =

$90,000

a. Calculate the amount of the total annual dividend requirement on preferred stock.

b. Calculate the amount that should be shown on the balance sheet for preferred stock.

c. Calculate the number of shares of common stock that are issued and the number of shares of common stock that are outstanding.

d. On January 1, 2007, the firm’s balance sheet showed common stock of $210,000 and additional paid-in capital on common stock of $468,750. The only transaction affecting these accounts during 2007 was the sale of some common stock. Calculate the number of shares that were sold and the selling price per share.

Problem Definition

Problem Solution

c. Number of shares issued =

Problem Solution

c. Number of shares issued =

$240,000 balance sheet amount

Problem Solution

c. Number of shares issued =

$240,000 balance sheet amount

/ $8 par value

Problem Solution

c. Number of shares issued =

$240,000 balance sheet amount

/ $8 par value

= $30,000

Problem Solution

c. Number of shares issued =

$240,000 balance sheet amount

/ $8 par value

= $30,000

Number of shares outstanding =

Problem Solution

c. Number of shares issued = $240,000 balance sheet amount / $8 par value = $30,000

Number of shares outstanding = 30,000 shares issued

Problem Solution

c. Number of shares issued = $240,000 balance sheet amount / $8 par value = $30,000

Number of shares outstanding = 30,000 shares issued - 2,000 treasury shares

Problem Solution

c. Number of shares issued = $240,000 balance sheet amount / $8 par value = $30,000

Number of shares outstanding = 30,000 shares issued - 2,000 treasury shares = 28,000

a. Calculate the amount of the total annual dividend requirement on preferred stock.

b. Calculate the amount that should be shown on the balance sheet for preferred stock.

c. Calculate the number of shares of common stock that are issued and the number of shares of common stock that are outstanding.

d. On January 1, 2007, the firm’s balance sheet showed common stock of $210,000 and additional paid-in capital on common stock of $468,750. The only transaction affecting these accounts during 2007 was the sale of some common stock. Calculate the number of shares that were sold and the selling price per share.

Problem Definition

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold =

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

/ $8 par value

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

/ $8 par value

= 3,750

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

/ $8 par value

= 3,750

Selling price per share =

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

/ $8 par value

= 3,750

Selling price per share = (($30,000 increase in common stock

Problem Solution

d. Additional

Common Stock Paid-in Capital

November 30, 2007. . . . . . . . . . . . . . $240,000 $540,000

January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)

Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock

/ $8 par value

= 3,750

Selling price per share = (($30,000 increase in common stock

+ $71,250 increase in paid-in capital)

Problem Solution

d. Additional Common Stock Paid-in CapitalNovember 30, 2007. . . . . . . . . . . . . . $240,000 $540,000January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock / $8 par value = 3,750

Selling price per share = (($30,000 increase in common stock + $71,250 increase in paid-in capital) / 3,750 shares sold

Problem Solution

d. Additional Common Stock Paid-in CapitalNovember 30, 2007. . . . . . . . . . . . . . $240,000 $540,000January 1, 2007 . . . . . . . . . . . . . . . . . (210,000) (468,750)Increase . . . . . . . . . . . . . . . . . . . . . . . $ 30,000 $ 71,250

Number of shares sold = $30,000 increase in common stock / $8 par value = 3,750

Selling price per share = (($30,000 increase in common stock + $71,250 increase in paid-in capital) / 3,750 shares sold = $27 per share

e. Describe the transaction that resulted in the additional paid-in capital from treasury stock.

f. The retained earnings balance on January 1, 2007, was $90,300. Net income for the past 11 months has been $24,000. Preferred stock dividends for all of 2007 have been declared and paid. Calculate the amount of dividends on common stock during the first 11 months of 2007.

Problem Definition

Problem Solution

e. Treasury stock was resold at a price greater than its cost.

e. Describe the transaction that resulted in the additional paid-in capital from treasury stock.

f. The retained earnings balance on January 1, 2007, was $90,300. Net income for the past 11 months has been $24,000. Preferred stock dividends for all of 2007 have been declared and paid. Calculate the amount of dividends on common stock during the first 11 months of 2007.

Problem Definition

Problem Solution

f. Retained earnings, January 1, 2007 . . . . . . . . . $90,300

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Less: preferred stock dividends . . . . . . . . . . . . (10,800)

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Less: preferred stock dividends . . . . . . . . . . . . (10,800)

Less: Common stock dividends . . . . . . . . . . . . ? .

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Less: preferred stock dividends . . . . . . . . . . . . (10,800)

Less: Common stock dividends . . . . . . . . . . . . ? .

Retained earnings, December 31, 2007 . . . . . . $97,000

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Less: preferred stock dividends . . . . . . . . . . . . (10,800)

Less: Common stock dividends . . . . . . . . . . . . ? .

Retained earnings, December 31, 2007 . . . . . . $97,000

Solving for the unknown:

Common stock dividends =

Problem Solution

f. Retained earnings, January 1, 2004 . . . . . . . . . $90,300

Add: Net income. . . . . . . . . . . . . . . . . . . . . . . . 24,000

Less: preferred stock dividends . . . . . . . . . . . . (10,800)

Less: Common stock dividends . . . . . . . . . . . . ? .

Retained earnings, December 31, 2004 . . . . . . $97,000

Solving for the unknown:

Common stock dividends = $6,500

AccountingWhat the Numbers Mean 7e

David H. MarshallWayne W. McManus

Daniel F. Viele

You should now have a better understandingof the stockholders’ equity section of the balance sheet.

Remember that there is a demonstration problem for each chapter that is here for your learning benefit.