Professional Documents
Culture Documents
EXERCISE 8-1
Transactions
Cash Acquired from Owner $80,000
Revenues 50,000
Expenses 22,400
Withdrawals 5,000
Income Statement
Revenues $50,000
Expenses (22,400)
Capital Statement
Balance Sheet
As of December 31, 2010
Assets
Cash $102,600
Total Assets $102,600
Liabilities $ -0-
Equity
Hughes, Capital 102,600
EXERCISE 8-2
Transactions:
Cash Contributions
W. Poole $ 60,000 40%
R. King 90,000 60%
Total $150,000 100%
Revenues $ 56,000
Expenses 32,000
Poole Withdrawal 2,000
King Withdrawal 3,000
PK Partnership
Financial Statements
For the Year Ended December 31, 2010
Income Statement
Revenues $56,000
Expenses (32,000)
Capital Statement
PK Partnership
Financial Statements
Balance Sheet
As of December 31, 2010
Assets
Cash $169,000
Total Assets $169,000
Liabilities $ -0-
Equity
W. Poole, Capital $ 67,600
R. King, Capital 101,400
Total Equity 169,000
Transactions:
Issued 8,000 shares of $10 par stock @ $18 $144,000
Revenues 58,000
Expenses 39,000
Dividends Paid 4,000
Premo Corporation
Financial Statements
For the Year Ended December 31, 2010
Income Statement
Revenues $58,000
Expenses (39,000)
Premo Corporation
Financial Statements
Balance Sheet
As of December 31, 2010
Assets
Cash $159,000
Total Assets $159,000
Liabilities $ -0-
Stockholders’ Equity
Common Stock, $10 par value,
8,000 shares issued and outstanding $80,000
Paid-In Capital in Excess of Par 64,000
Total Paid-In Capital 144,000
EXERCISE 8-4
a.
EXERCISE 8-5
Summary of Transactions
Cash Received Common Stock PIC in Excess CS Preferred Stock PIC in Excess PS
Event
Stockholders’ Equity:
Preferred Stock, $30 stated value, 5% cumulative class A, 50,000 shares authorized,
10,000 shares issued and outstanding
$ 300,000
Common Stock, $10 par value, 400,000 shares authorized, 50,000 shares issued and
outstanding 500,000
EXERCISE 8-6
b.
EXERCISE 8-8
Transactions:
Purchase: 3,000 x $40 = $120,000
Sale: 1,500 x $40 = $60,000 (Stock is removed from the Treasury stock account at the
purchase amount; any difference is shown in Paid in Capital in Excess of Cost – Treasury Stock)
Treasury Stock
1. 120,000
2. (60,000)
Bal. 60,000
EXERCISE 8-9
a. & b.
Common Stock Issued Outstanding
c.
Kwon Corporation Accounting Equation
EXERCISE 8-10
EXERCISE 8-11
Computation of Preferred Dividends:
Number of Shares Total Preferred Dividends
Dividend per Outstanding for Year
Par x Dividend % = Share x =
b.
Dist. to Shareholders
Amount Preferred Common
EXERCISE 8-13
Distribution of Dividend:
Distributed to Shareholders
Preferred Common
EXERCISE 8-14
b.
EXERCISE 8-15
a. No formal entry would be made in the accounting records. A memo entry would indicate the number of
shares had doubled and the par value had been reduced by one-half.
c. Theoretically, the market value per share would be reduced to $80 ($160 2) after the split. However, if
this is perceived as a good move by the company, the price per share may not fall that far, ending at
something over $80.
EXERCISE 8-16
a. The price per share of Mighty Drugs should increase substantially. This increase is a result of the expectation
of future profits. The approval of the new drug signals that profits should be substantially higher in the future.
c. The income statement will not be affected when the announcements are made. Only when revenues increase
will net income be affected.
EXERCISE 8-17
Note: The stock price for a day two months after the end of the company’s fiscal year was used because this
about the time the company’s audited financial statements and annual report would be released to
the public.
a. Price-earnings ratios:
b. The financial markets were more optimistic about Merck’s future financial performance in 2007 than in
2006.
c. The number of shares outstanding can be approximated by dividing the net earnings by the EPS, as follows: