QUICK STUDY

12-1 True statement: 1,3 and 4

Exercise 12-11
1. Profit for the period ................................................................ $480,000
Preferred dividends................................................................ (65,000)
Profit available to common Shareholders................................ $415,000

2.
Time Period Original Effect Fraction Weighted
Shares of Split of Year Average
January-May..... 50,000 3 5/12 62,500
June-August.... .80,000 3 3/12 60,000
September ....... 67,000 * 3 1/12 16,750
October-December 201,000 ** 1 3/12 50,250
Weighted-average shares outstanding 189,500

*(80,000-13,000 =67,000)
** (67,000 x 3 = 201,000)

3. Profit available to common Shareholders............................. $415,000

Divided by weighted-average outstanding shares................... 189,500
Basic earnings per share............................................................ $2.19

Problem 12-2
1.
Jan. 1 Treasury Shares, Common..........................................40,000
Cash.......................................................................... 40,000
Purchased treasury shares (2,000 x $20).

Jan. 5 Retained Earnings ......................................................36,000

Common Dividend Payable ................................ 36,000
Declared $2 dividend on 18,000 outstanding (20,000-2000)
shares.

Feb. 28 Common Dividend Payable .........................................36,000

Cash.......................................................................... 36,000
Paid cash dividend.

July 6 Cash*............................................................................18,000
Treasury Shares, Common** ................................ 15,000
Contributed Capital, Treasury Shares***............... 3,000
Reissued treasury shares.
*(750 x $24) **(750 x $20) ***(750 x $4)

Aug. 22 Cash*............................................................................21,250
Contributed Capital, Treasury Shares.........................3,000
Retained Earnings ***...................................................... 750
Treasury Shares, Common** ................................ 25,000
Reissued treasury shares.
*(1,250 x $17) **(1,250 x $20) ***(25,000-21,250-3,000)

Sept. 5 Retained Earnings ......................................................40,000

Common Dividend Payable ................................ 40,000
Declared $2 dividend on 20,000 outstanding
shares.

Oct. 28 Common Dividend Payable .......................................40,000

Cash.........................................................................40,000
Paid cash dividend.

Dec. 31 Income Summary......................................................194,000

Retained Earnings ................................................... 194,000
Closed Income Summary account.

2.
CONTEXT CORPORATION
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED 31 DECEMBER 2006
Retained earnings, 31 Dec. 2005...................................... $135,000
Profit for the period ........................................................... 194,000
329,000
Cash dividends declared .................................................. (76,000)
Treasury Share reissuances............................................. (750)
Retained earnings, 31 Dec 2006....................................... $252,250
©McGraw-Hill Companies, Inc., 2007
Solutions Manual, Chapter 12
3.
CONTEXT CORPORATION
SHAREHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET
AS AT 31 DECEMBER 2006
Common shares$10 par value, 50,000 shares
authorized, 20,000 shares issued and outstanding ..... $200,000

Share premium,
common shares ............................................................... 30,000
Total contributed capital ................................................... 230,000
Retained earnings (from part 2) ....................................... 252,250
Total Shareholders’ equity ............................................... $482,250

**********
If companies have preferred and ordinary shares:

CONTEXT CORPORATION
SHAREHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET
AS AT 31 DECEMBER 2006

Preferred shares- RM50 par value, 5% cumulative

700,000 authorized, 30,000 issued and paid up 1,500,000
Shares premium-preferred shares 100,000
Total capital contributed by preferred shareholders 1,600,000

Common shares$10 par value, 50,000 shares

authorized, 20,000 shares issued and outstanding ..... $200,000
Share premium- common shares .................................................. 30,000
Total capital contributed capital by common shareholders 230,000

Retained earnings (from part 2) ....................................... 252,250

Total Shareholders’ equity ............................................... $2,082,250