Chapter 9

Shareholders Equity
Exercises
(10-15 min.)

E 9-18

Req. 1

Journal
DATE

July

ACCOUNT TITLES AND EXPLANATION

19

Cash (10,000$6.50)...............................................................

DEBIT

65,000

Common Shares..................................................................
Oct.

Cash..........................................................................................

65,000
50,000

Preferred Shares.................................................................
11

CREDIT

50,000

Inventory...................................................................................

11,000

Equipment................................................................................

8,500

Common Shares..................................................................

19,500

Req. 2
Shareholders equity:
Preferred shares, $1.50
10,000 shares authorized, 500 shares issued.........................................................
Common shares
Unlimited number of shares authorized, 13,300
shares issued............................................................................................................
Retained earnings (deficit)..............................................................................................
Total shareholders equity........................................................................................

$50,000

84,500
(42,000)
$92,500

(10-15 min.)

E 9-19

Shareholders Equity
Preferred shares, $4.50, 5,000 shares
authorized, 300 shares issued................................................................................
Common shares, 10,000 shares authorized,
5,000 shares issued.................................................................................................
Retained earnings.........................................................................................................
Total shareholders equity.......................................................................................

$ 20,000
74,000*
49,000
$143,000

_____
*Computation:

Sept. 23:
1,000 shares $16 =
Oct.
12: 4,000 shares issued for inventory of $15,000 and
of $43,000 =

$16,000
equipment
58,000
$74,000

Journal entries (not required):

Sept.

23

Cash..........................................................................................

16,000

Common Shares
................................................................................................
Oct.

Cash
................................................................................................

16,000

20,000

Preferred Shares
................................................................................................
12

20,000

Inventory...................................................................................

15,000

Equipment................................................................................

43,000

Common Shares..................................................................

58,000

(10 min.)
Contributed capital consists of:
Preferred shares:
Issued for cash (5,000 shares$110)........................................................
Common shares:
Issued for cash (20,000 shares$20).......................................................
Issued for organizing the corporation.......................................................
Issued for patent.........................................................................................
Total paid-in capital...............................................................................................

E 9-20

$ 550,000
400,000
15,000
80,000
$1,045,000

Unused data:
Net income
Dividends declared

Short-cut solution (also okay):

1.
$ 15,000
2.
80,000
3.
550,000 (5,000$110)
4.
400,000 (20,000$20)
$1,045,000 = Total contributed capital
Journals for shares/dividends:
Legal/organization expenses
$15,000
Common shares
$15,000
Patent
$80,000
Common shares
$80,000
Cash
$950,000
Preferred shares
$550,000
Common Shares
$400,000
Dividends
$20,000
Dividend payable (if unpaid)/Cash
$20,000

Trans World
Partial Balance Sheet
End of Year One
Shareholders Equity
Preferred Shares ? shares authorized, 5000 shares issued*
$ 550,000
Common Shares ? shares authorized, ? shares issued
495,000
Retained Earnings
35,000
Total Shareholders Equity
$1,080,000
*Should shares issued and authorized be given you should state within the shareholders equity
section

(10-15 min.)

E 9-21
Shareholders Equity (Thousands)

Class A common shares, unlimited number of shares

authorized, 3,600 shares issued.......................................................................................

Class B common shares, unlimited number of shares

authorized, 5,000 shares issued..............................................................................

90
1,380

Contributed surplusshare repurchase

901

Deficit

(2,400)

Shareholders equity......................................................................................................... $

(29)

A deficit arises when the accumulated losses plus dividends paid since inception exceed
accumulated profits. Sagebrush Software Ltd.s deficit reduces the shareholders equity to a
negative $29,000, so that the companys total assets are less than its liabilities.

(20-30 min.)
Req. 1
Conversion of preferred shares into common shares
Derecognition of preferred shares
Req. 2
Issuance of common shares:
a. To preferred shareholders who converted their preferred
b. For cash or other assets
c. Stock dividend
Req. 3 (All amounts except per share price in millions)

Common shares issued.

E 9-25

shares into common shares

(Millions
of shares
of stock)
Dec. 31, 2011
564

Req. 4
Retained Earnings (Millions)
Dividends
during 2011

136

Dec. 31, 2010

Net income 2011

Bal.

5,006
1,410

Dec. 31, 2011

Bal.

6,280

Req. 5 (All amounts in millions)

Cost of repurchased shares.........................................................................................

Repurchased shares, number of shares.....................................................................
Average price per share paid for
shares repurchased in 2011.........................................................................................

Repurchases
During 2011
$60
10
$6.00

Shares issued
During 2011
Balance Dec. 31, 2011...................................................................................................
$1,900
Less cost of shares repurchased................................................................................
60
Balance without issuance
1,840
Balance Dec. 31, 2011...................................................................................................
3,270
Value of shares issued during 2011
($3,270 $1,840)............................................................................................................
$1,430

(15 min.)
PREFERRED

2010

2011

Total dividend............................................
Preferred dividends
in arrears:
2008: 80,000$0.10 =
2009: 80,000$0.10 =
Current year
2010: 80,000$0.10 =
Total to preferred.......................................
Remainder to common.............................

Total dividend............................................
Preferred dividends:
Current year
2011: 80,000$0.10 =
Remainder to common.............................

COMMON

E 9-26

TOTAL

$ 50,000

$ 8,000
8,000
8,000
$24,000

$26,000

$100,000

$8,000
$92,000

Problems
Group A
(30-45 min.)

P 9-59A

Req. 1

Journal
DATE

2011
Oct.
6

10

26

ACCOUNT TITLES AND EXPLANATION

Organization Expense................................................................................

Common Shares (300 $5)...................................................................

Issued shares to lawyer for chartering the
corporation.

DEBIT

1,500
1,500

Cash (21,000 $5).......................................................................................

Common Shares.....................................................................................
Issued common shares for cash.

105,000

Patent...........................................................................................................

40,000

Preferred Shares (400 $100)..............................................................

Issued preferred shares to acquire a patent.

Cash.............................................................................................................

Common Shares (2,000 $6)................................................................

Issued common shares for cash.

CREDIT

105,000

40,000

12,000
12,000

Req. 2
Challenger Canoes Inc.
Balance Sheet (partial)
October 31, 2011
Shareholders equity:
Preferred shares, $6, 10,000 shares authorized,
400 shares issued..........................................................................................

$ 40,000

Common shares, 100,000 shares

authorized, 23,300 shares issued*................................................................
Retained earnings...............................................................................................
Total shareholders equity.............................................................................
_____
*300 + 9,000 + 12,000 + 2,000 = 23,300 shares
**$1,500 + $105,000 + $12,000 = $118,500

118,500**
49,000
$207,500

P 9-63A

(15-25 min.)
Req. 1
Steeltrap Security has these shares outstanding:

$5.00 cumulative preferred shares

$2.50 cumulative preferred shares

common shares

Req. 2
Steeltrap Security issued the $2.50 cumulative preferred shares at $25. This can be determined by
dividing the balance of the $2.50 cumulative preferred share account by the number of shares issued
($100,000 4,000).

Req. 3
Steeltrap would have to pay preferred dividends in arrears before paying dividends to the common
shareholders because the preferred shares are cumulative.
Req. 4
Steeltrap must pay preferred dividends of $22,500 each year to avoid having preferred dividends in
arrears.
_____
Computation:
$5.00 Preferred:
2,500 shares$5.00
$2.50 Preferred:
4,000 shares$2.50
Total preferred dividends...

=
=

$12,500
10,000
$22,500

Req. 5

Journal
DATE

ACCOUNT TITLES AND EXPLANATION

Retained Earnings......................................................................

DEBIT

50,000

CREDIT

Dividends Payable, $5.00 Preferred

(2,500 shares$5.002).................................................

25,000

Dividends Payable, $2.50 Preferred

(4,000$2.502).............................................................

20,000

Dividends Payable, Common

($50,000 $25,000 $20,000)...........................................

5,000

Problems
Group B
(30-45 min.)

P 9-69B

Req. 1

Journal
DATE

ACCOUNT TITLES AND EXPLANATION

DEBIT

CREDIT

2011
Jan.

Organization Expense.................................................................

10,000

Common Shares.....................................................................

10,000

Issued shares to promoter for assisting with issuance of

shares.
6

Cash (8,800$11 per share)......................................................

96,800

Common Share (8,800$11).................................................

96,800

Issued common shares for cash.

12

Patent...........................................................................................

110,000

Preferred Shares.....................................................................

110,000

Issued preferred shares to acquire a patent.

22

Cash (1,500$12).......................................................................

18,000

Common Shares (1,500$12)...............................................

18,000

Issued common shares for cash.

Req. 2
BFC Inc.
Balance Sheet (partial)
January 31, 2011
Shareholders equity:
Preferred shares, $6, 10,000 shares authorized,
1,000 shares issued.............................................................................................................

$110,000

Common shares,
250,000 shares authorized, 11,300 shares issued*............................................................
Retained earnings.....................................................................................................................

124,800**
89,000

Total shareholders equity...................................................................................................

_____
* 1,000 + 5,000 + 3,800 + 1,500 = 11,300 shares
**$10,000 + $96,800 + $18,000 = $124,800

$323,800

(10-15 min.)

P 9-70B

Northwest Territories Inc.

Balance Sheet (partial)
December 31, 2011
Shareholders equity:
Preferred shares, $5, 10,000 shares
authorized, 1,000 shares issued.................................................................................

$100,000

Common shares, 400,000 shares

authorized, 100,000 shares issued.............................................................................

370,000

Retained earnings.............................................................................................................

70,000

Total shareholders equity...........................................................................................

$540,000

_____
Computations:
Preferred shares: 1,000$100 = $100,000
Common shares: Balance given as $370,000
Retained earnings: $40,000 + $90,000 (1,000 $52)
(100,000$0.50) = $70,000