Financial Accounting Questions and Answers

OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income of $667,000 for a recent year, while Staples had a net income of $738,671,000. OfficeMax had preferred stock of $36,479,000 with preferred dividends of $2,818,000. Staples had no preferred stock. The outstanding common shares for each company were as follows: Average Number of Common Shares Outstanding Offi ceMax 77,483,000 Staples 721,838,000 a. Determine the earnings per share for each company. Round to the nearest cent. b. Evaluate the relative profitability of the two companies. Answer: a. OfficeMax:  Earnings per Share = Average Number of Common Shares Outstanding Net Income − Preferred Dividends  Earnings per Share = 77,483,000 shares $667,000 − $2,818,000  Earnings per Share = $(0.03) per share  Staples:  Earnings per Share = Average Number of Common Shares Outstanding Net Income − Preferred Dividends  Earnings per Share = 721,838,000 sh...

Procter & Gamble (P&G) is one of the largest consumer products companies in the world, famous for such brands as Crest® and Tide®. Financial information for the company for three recent years is as follows: Fiscal Years Ended (in millions) 2009 2008 2007 Net income $11,293 $11,798 $10,063 Preferred dividends $192 $176 $161 Average number of common shares outstanding 2,952 3,081 3,159 a. Determine the earnings per share for fiscal years 2009, 2008, and 2007. Round to the nearest cent. b. Evaluate the growth in earnings per share for the three years in comparison to the growth in net income for the three years. Answer: a. Earnings per Share = Avg.Number of Common Shares Outstanding Net Income − Preferred Dividends  2009 Earnings per Share = 2,952 shares $11,293 − $192  = $3.76 per share  2008 Earnings per Share = 3,081 shares $11,798 − $176  = $3.77 per share  2007 Earnings per Share = 3,159 shares $10,063 − $161  = $3.13 per share b. 2009 2008 2007 ...

Selected transactions completed by Gene’s Boating Corporation during the current fiscal year are as follows: Feb. 10. Split the common stock 3 for 1 and reduced the par from $60 to $20 per share. After the split, there were 300,000 common shares outstanding. May 1. Declared semiannual dividends of $2.00 on 40,000 shares of preferred stock and $0.12 on the common stock payable on June 15. June 15. Paid the cash dividends. Nov. 1. Declared semiannual dividends of $2.00 on the preferred stock and $0.08 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $28. Dec. 15. Paid the cash dividends and issued the certifi cates for the common stock dividend. Journalize the transactions. Answer: Feb. 10 No entry required. The stockholders’ ledger would be revised to record the increased number of shares held by each stockholder. May 1 Cash Dividends .............

Malen Arts, Inc., had earnings of $133,750 for 2012. The company had 25,000 shares of common stock outstanding during the year. In addition, the company issued 10,000 shares of $100 par value preferred stock on January 3, 2012. The preferred stock has a dividend of $4 per share. There were no transactions in either common or preferred stock during 2012. Determine the basic earnings per share for Malen Arts. Answer: Earnings per Share = Avg.Number of Common Shares Outstanding Net Income − Preferred Dividends Earnings per Share = ( ) 25,000 shares $133,750 − $4 per share × 10,000 shares Earnings per Share = $3.75 per share 

Indicate whether the following actions would (+) increase, (–) decrease, or (0) not affect Indigo Inc.’s total assets, liabilities, and stockholders’ equity: Assets Liabilities Stockholders’ Equity (1) Authorizing and issuing stock certifi cates in a stock split _____________ _____________ _____________ (2) Declaring a stock dividend _____________ _____________ _____________ (3) Issuing stock certifi cates for the stock  dividend declared in (2) _____________ _____________ _____________ (4) Declaring a cash dividend _____________ _____________ _____________ (5) Paying the cash dividend declared in (4) _____________ _____________ _____________ Answer: Stockholders’  Assets Liabilities Equity (1) Authorizing and issuing stock  certificates in a stock split 0 0 0 (2) Declaring a stock dividend 0 0 0 (3) Issuing stock certificates for  the stock dividend declared  in (2) 0 0 0 (4) Declaring a cash dividend 0 + – (5) Paying the cash dividend  declared in (4) – –...

The stockholders’ equity T accounts of Life’s Greeting Cards Inc. for the current fiscal year ended December 31, 2012, are as follows. Prepare a statement of stockholders’ equity for the fiscal year ended December 31, 2012. COMMON STOCK Jan. 1 Balance 3,000,000 Mar. 7 Issued 27,000 shares 1,350,000 Dec. 31 Balance 4,350,000 PAID-IN CAPITAL IN EXCESS OF PAR Jan. 1 Balance 480,000 Mar. 7 Issued 27,000 shares 324,000 Dec. 31 Balance 804,000 TREASURY STOCK Aug. 7 Purchased 4,500 shares 216,000 RETAINED EARNINGS Mar. 31 Dividend 37,500 Jan. 1 Balance 5,220,000 June 30 Dividend 37,500 Dec. 31 Closing (net income) Sept. 30 Dividend 37,500 765,000 Dec. 31 Dividend 37,500 Dec. 31 Balance 5,835,000 Answer: LIFE’S GREETING CARDS INC. Statement of Stockholders’ Equity For the Year Ended December 31, 2012  Paid-In  Common Capital in  Stock Excess Treasury Retained  $50 Par of Par Stock Earnings Total Balance, Jan. 1, 2012...... $3,000,000 $480,000 — $5,220,000 $ 8,700,000 Issued ...

Gino’s Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Midwest. Gino’s Restaurant Corporation, which had 100,000 shares of common stock outstanding, declared a 5-for-1 stock split (4 additional shares for each share issued). a. What will be the number of shares outstanding after the split? b. If the common stock had a market price of $200 per share before the stock split, what would be an approximate market price per share after the split? Answer: a. 500,000 shares (100,000 × 5) b. $40 per share ($200/5)

List the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year. Stockholders’ Equity Paid-in capital: Preferred 1% stock, $200 par (25,000 shares authorized and issued) . . . . . . . . . . . . . . . . . $5,000,000 Excess of issue price over par . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 $ 5,075,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,750,000 Treasury stock (45,000 shares at cost) . . . . . . . . . . . . . . . . . . . . . . . . 648,000 Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 Total paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,648,000 Common stock, $14 par (800,000 shares authorized, 500,000 shares issued). . . . . . . . . . . . . . . . . . . . . . . . 7,600,000 Organizing costs . . . . . . . . . . . . . . . . . . . . . ....

Sandusky Corporation, a manufacturer of industrial pumps, reports the following results for the year ending October 31, 2012: Retained earnings, November 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $796,750 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,000 Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 Stock dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Prepare a retained earnings statement for the fiscal year ended October 31, 2012. Answer: SANDUSKY CORPORATION Retained Earnings Statement For the Year Ended October 31, 2012 Retained earnings, November 1, 2011.............................. $796,750 Net income.......................................................................... $215,000 Less dividends declar...

Furious and Fast Car Inc. retails racing products for BMWs, Porsches, and Ferraris. The following accounts and their balances appear in the ledger of Furious and Fast Car Inc. on November 30, the end of the current year: Common Stock, $8 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,000,000 Paid-In Capital in Excess of Par—Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 525,000 Paid-In Capital in Excess of Par—Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 Paid-In Capital from Sale of Treasury Stock—Common . . . . . . . . . . . . . . . . . . . 175,000 Preferred 2% Stock, $125 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,120,000 Treasury Stock—Common . . . . . . . . . . . . . . . . . . . . . . . . . . ...

The following accounts and their balances appear in the ledger of Cline Properties Inc. on April 30 of the current year: Common Stock, $90 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,700,000 Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Paid-In Capital from Sale of Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,173,000 Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352,000 Prepare the Stockholders’ Equity section of the balance sheet as of April 30. Fifty thousand shares of common stock are authorized, and 4,000 shares have been reacquired. Answer: Stockholders’ Equity Paid-in capital:  Common stock, $...

The following accounts and their balances were selected from the unadjusted trial balance of CW Group Inc., a freight forwarder, at March 31, the end of the current fiscal year: Preferred 1% Stock, $75 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,500,000 Paid-In Capital in Excess of Par—Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 Common Stock, no par, $8 stated value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,000 Paid-In Capital in Excess of Stated Value—Common Stock . . . . . . . . . . . . . . . 450,000 Paid-In Capital from Sale of Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,570,000 Prepare the Paid-In Capital portion of the Stockholders’ Equity section of the balance sheet. There are 500,000 shares of commo...

Golden Gardens Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On June 19 of the current year, Golden Gardens Inc. reacquired 24,000 shares of its common stock at $64 per share. On August 30, 19,000 of the reacquired shares were sold at $68 per share, and on September 6, 3,000 of the reacquired shares were sold at $70. a. Journalize the transactions of June 19, August 30, and September 6. b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. What is the balance in Treasury Stock on December 31 of the current year? d. How will the balance in Treasury Stock be reported on the balance sheet? Answer: a. June 19 Treasury Stock (24,000 × $64)..................... 1,536,000  Cash......................................................... 1,536,000  Aug. 30 Cash (19,000 × $68)...................................... 1,292,000  Treasury Stock (19,000 × $64)................ 1,216,000  Pa...

Conyers Water Inc. bottles and distributes spring water. On July 5 of the current year, Conyers Water Inc. reacquired 12,500 shares of its common stock at $80 per share. On November 3, Conyers Water Inc. sold 7,000 of the reacquired shares at $85 per share. The remaining 5,500 shares were sold at $78 per share on December 10. a. Journalize the transactions of July 5, November 3, and December 10. b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet? d. For what reasons might Conyers Water Inc. have purchased the treasury stock? Answer: a. July 5 Treasury Stock (12,500 × $80)..................... 1,000,000  Cash......................................................... 1,000,000  Nov. 3 Cash (7,000 × $85)........................................ 595,000  Treasury Stock (7,000 × $80).................. 560,000  Paid-...

Organic Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Organic Life Co.: Common stock (250,000 shares authorized), $125 par, $17,500,000; Paid-in capital in excess of par—common stock, $560,000; and Retained earnings, $75,496,000. The board of directors declared a 3% stock dividend when the market price of the stock was $132 a share. Organic Life Co. reported no income or loss for the current year. a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3...

Deer Creek Inc. bottles and distributes spring water. On April 27 of the current year, Deer Creek reacquired 15,000 shares of its common stock at $60 per share. On July 13, Deer Creek sold 9,000 of the reacquired shares at $72 per share. The remaining 6,000 shares were sold at $59 per share on October 8. a. Journalize the transactions of April 27, July 13, and October 8. b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. For what reasons might Deer Creek have purchased the treasury stock? Answer: a. Apr. 27 Treasury Stock ............................................. 900,000  Cash......................................................... 900,000  July 13 Cash .............................................................. 648,000  Treasury Stock (9,000 × $60).................. 540,000  Paid-In Capital from Sale of  Treasury Stock................................... 108,000  Oct. 8 Cash ....................

Baird Products Inc., a wholesaler of office products, was organized on January 30 of the current year, with an authorization of 80,000 shares of 2% preferred stock, $75 par and 800,000 shares of $20 par common stock. The following selected transactions were completed during the first year of operations: Jan. 30. Issued 300,000 shares of common stock at par for cash. 31. Issued 750 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation. Feb. 21. Issued 32,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $150,000, $460,000, and $90,000, respectively. Mar. 2. Issued 15,000 shares of preferred stock at $77.50 for cash. Journalize the transactions. Answer: Jan. 30 Cash ...................................................................... 6,000,000  Common Stock (300,000 × $20) ..................... 6,000,000  31 Organizational Expenses..................................... 15,000 ...

The declaration, record, and payment dates in connection with a cash dividend of $365,850 on a corporation’s common stock are April 1, May 1, and June 3. Journalize the entries required on each date. Answer: Apr. 1 Cash Dividends .................................................... 365,850  Cash Dividends Payable ................................ 365,850 May 1 No entry required. June 3 Cash Dividends Payable...................................... 365,850  Cash................................................................. 365,850 

Wildwood Nursery, with an authorization of 50,000 shares of preferred stock and 400,000 shares of common stock, completed several transactions involving its stock on June 1, the first day of operations. The trial balance at the close of the day follows: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584,000 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910,000 Preferred 3% Stock, $120 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 Paid-In Capital in Excess of Par—Preferred Stock . . . . . . . . . . . . . . . . . . . 60,000 Common Stock, $50 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 Paid-In Capital i...

On April 15, Hass Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 17,500 shares of $20 par common stock with a current market price of $30. Journalize the entry to record the transaction. Answer: Apr. 15 Land ...................................................................... 525,000  Common Stock ............................................... 350,000  Paid-In Capital in Excess of Par .................... 175,000 

Fantastic Sounds Corp., an electric guitar retailer, was organized by Pam Mikhail, Jane Lo, and Dale Nadal. The charter authorized 400,000 shares of common stock with a par of $50. The following transactions affecting stockholders’ equity were completed during the first year of operations: a. Issued 20,000 shares of stock at par to Pam Mikhail for cash. b. Issued 1,000 shares of stock at par to Dale Nadal for promotional services provided in connection with the organization of the corporation, and issued 15,000 shares of stock at par to Dale Nadal for cash. c. Purchased land and a building from Jane Lo. The building is mortgaged for $300,000 for 20 years at 5%, and there is accrued interest of $2,500 on the mortgage note at the time of the purchase. It is agreed that the land is to be priced at $200,000 and the building at $500,000, and that Jane Lo’s equity will be exchanged for stock at par. The corporation agreed to assume responsibility for paying the mortgage note and the accrued ...

On July 12, Lasting Carpet Inc., a carpet wholesaler, issued for cash 300,000 shares of no-par common stock (with a stated value of $4) at $9, and on November 18, it issued for cash 40,000 shares of $90 par preferred stock at $100. a. Journalize the entries for July 12 and November 18, assuming that the common stock is to be credited with the stated value. b. What is the total amount invested (total paid-in capital) by all stockholders as of November 18? Answer: a. July 12 Cash .............................................................. 2,700,000  Common Stock ....................................... 1,200,000  Paid-In Capital in Excess of  Stated Value....................................... 1,500,000  Nov. 18 Cash .............................................................. 4,000,000  Preferred Stock ....................................... 3,600,000  Paid-In Capital in Excess of Par—  Preferred Stock.................................. 400,000 b. $6...

Wings Inc., a software development firm, has stock outstanding as follows: 25,000 shares of cumulative 1%, preferred stock of $40 par, and 50,000 shares of $120 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $7,500; second year, $10,500; third year, $25,000; fourth year, $60,000. Calculate the dividends per share on each class of stock for each of the four years. Answer: 1st Year 2nd Year 3rd Year 4th Year a. Total dividend declared.................. $ 7,500 $ 10,500 $ 25,000 $ 60,000  Preferred dividend (current)........... $ 7,500 $ 8,000 $ 10,000* $ 10,000  Preferred dividend in arrears......... — 2,500 2,000 — b. Total preferred dividends............... $ 7,500 $ 10,500 $ 12,000 $ 10,000  Preferred shares outstanding........ ÷ 25,000 ÷ 25,000 ÷ 25,000 ÷ 25,000  Preferred dividend per share ......... $ 0.30 $ 0.42 $ 0.48 $ 0.40  *$10,000 = 25,000 shares × $40 × 1%  Dividend for comm...

On January 14, Mountain Rocks Inc., a marble contractor, issued for cash 24,000 shares of $25 par common stock at $32, and on March 17, it issued for cash 60,000 shares of $10 par preferred stock at $11. a. Journalize the entries for January 14 and March 17. b. What is the total amount invested (total paid-in capital) by all stockholders as of March 17? Answer: a. Jan. 14 Cash .............................................................. 768,000  Common Stock ....................................... 600,000  Paid-In Capital in Excess of Par—  Common Stock .................................. 168,000  Mar. 17 Cash .............................................................. 660,000  Preferred Stock ....................................... 600,000  Paid-In Capital in Excess of Par—  Preferred Stock.................................. 60,000 b. $1,428,000 ($768,000 + $660,000)

Baxter Inc., a developer of radiology equipment, has stock outstanding as follows: 18,000 shares of cumulative 2%, preferred stock of $75 par, and 40,000 shares of $10 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $22,500; second year, $28,800; third year, $40,100; fourth year, $77,000. Calculate the dividends per share on each class of stock for each of the four years. Answer:  1st Year 2nd Year 3rd Year 4th Year a. Total dividend declared.................. $ 22,500 $ 28,800 $ 40,100 $ 77,000  Preferred dividend (current)........... $ 22,500 $ 27,000* $ 27,000 $ 27,000  Preferred dividend in arrears......... — 1,800 2,700 — b. Total preferred dividends............... $ 22,500 $ 28,800 $ 29,700 $ 27,000  Preferred shares outstanding........ ÷ 18,000 ÷ 18,000 ÷ 18,000 ÷ 18,000  Preferred dividend per share ......... $ 1.25 $ 1.60 $ 1.65 $ 1.50  *$27,000 = 18,000 shares × $75 × 2% ...