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Lecture

FFA_3e_Solutions_ch10.doc

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Department
Accounting
Course
ACC 110
Professor
Marla Spergel
Semester
Fall

Description
CHAPTER 10 Owners Equity EXERCISES E10-1. a. Dr. Cash 6,000,000 Cr. Common shares 6,000,000 To record the issue of 500,000 common shares (500,000 shares $12 per share = $6,000,000) b. No journal entry is required for a stock split. c. June 7, 2015 Dr. Dividends (Retained Earnings) 27,500,000 Cr. Dividends payable 27,500,000 (250,000,000 shares $0.11 per share = $27,500,000) July 4, 2015 Dr. Dividends payable 27,500,000 Cr. Cash 27,500,000 d. Dr. Cash (2,000,000 shares $7.50 per share) 15,000,000 Cr. Common shares ($0.01 2,000,000) 20,000 Contributed surplus ($7.49 2,000,000) 14,980,000 Copyright 2010 McGraw-Hill Ryerson Ltd. 1 e. Dr. Retained earnings 6,720,000 Cr. Common shares 6,720,000 Using the market value of the shares on April 21, 2015 ((20,000,000 8%) $4.20). Dr. Retained earnings 6,960,000 Cr. Common shares 6,960,000 Using the average price paid for the shares by investors ((20,000,000 8%) ($87,000,000 20,000,000 shares)). f. December 4, 2015 Dr. Inventory 1,600,000 Cr. Gain on disposal of inventory 1,600,000 To recognize the gain on disposal of inventory. (Market value Carrying amount = $3,700,000 $2,100,000) December 4, 2015 Dr. Retained earnings 3,700,000 Cr. Property dividend distributable 3,700,000 To record the property dividend. December 21, 2015 Dr. Property dividend distributable 3,700,000 Cr. Inventory 3,700,000 To distribute the property dividend. E10-3. Copyright 2010 McGraw-Hill Ryerson Ltd. 2 Owners' Equity Preferred Common Accumulated Retained Date Asset Liability Shares Shares OCI Earnings Beginning 31-Dec-13 $22,000,000 $360,000,000 $1,750,000 $218,500,000 i During (60,000,000) (60,000,000) ii During 44,000,000 44,000,000 iii During 11,500,000 11,500,000 iv During 12,000,000 12,000,000 v During (4,500,000) (4,500,000) vi During 44,000,000 (44,000,000) ix During 71,400,000 (71,400,000) Net Income 31-Dec-14 (800,000) 42,000,000 Ending 31-Dec-14 $3,000,000 $71,400,000 $33,500,000 $460,000,000 $950,000 $80,600,000 Number of Shares Outstanding Preferred Common Shares Shares Number outstanding December 31, 2013 1,000,000 75,000,000 Issue of common shares 4,000,000 Issue of preferred shares 500,000 Issue of common for shares of another company 1,000,000 Share dividend 4,000,000 Number outstanding December 31, 2014 1,500,000 84,000,000 Shareholders' equity Preferred Shares (Authorized, 2,500,000; Outstanding, 1,500,000) $33,500,000 Copyright 2010 McGraw-Hill Ryerson Ltd. 3 Common Shares (Authorized, 200,000,000; Outstanding, 84,000,000) 460,000,000 Accumulated OCI 950,000 Retained Earnings 80,600,000 Total $575,050,000 E10-5. Dr. Retained earnings 1,875,000 Cr. Accumulated depreciation 1,875,000 ($5,000,000 8 years 3 years) In 2013, retained earnings must be reduced by $1,875,000 to $15,925,000. Since the error was discovered during 2013 the deprecation expense of $625,000 for 2013 can be properly recorded for that year. The $1,875,000 adjustment has no bearing on 2013 and the error results in prior years statements being misstated so retroactive adjustment makes sense. E10-7. 2012 2013 2014 2015 2016 Net Income $ $75,000 $74,300 $95,000 $101,000 OCI (10,000) 3,700 20,000 (6,000) Comprehensive income 65,000 78,000 115,000 95,000 Retained earnings (assuming after dividends) 250,000 315,000 377,300 457,300 538,300 Accumulated OCI (8,000) (18,000) (14,300) 5,700 (300) Dividends 10,000 12,000 15,000 20,000 E10-9. Basic Earnings per share = (Net income preferred dividends) Weighted average common shares Copyright 2010 McGraw-Hill Ryerson Ltd. 4
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