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BE 18 – 1 Two attributes of other comprehensive income are reported: (1) components of comprehensive income created during the reporting period ($15 million in this instance) and (2) the comprehensive income accumulated over the current and prior periods ($50 million at the end of this year)The $50 million represents the cumulative sum of the changes in each component created during each reporting period (the discl osure note) throughout all prior years!ince this amount increased by $15 million" the balance must have been $#5 million last yearBE 18-3 ewelling%s pai d&in capital ' ecess of par will increase by $*0"000: +"000 hours $2+0 less $100"000 par Journal entry (not required): egal epense (+"000 hours $2+0) ,*0"000 -ommon stoc. (100"000 shares $1 par per share) 100"000 /aid&in capital ' ecess of par (remainder) *0"000 BE 18 – 5 -ompute the amount of dividends to be received by common stoc.holders in 201*/articulars mount (mount in illions) Total value of cumulative preference stoc. $+00 /ercentage of preference dividend *3 -umulative preference dividend for 201* 2+ dd: rrears for 201+ +

answer key for intermediate accounting

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    BE 18 1

    Two attributes of other comprehensive income are reported: (1) components of comprehensive

    income created during the reporting period ($15 million in this instance) and (2) the

    comprehensive income accumulated over the current and prior periods ($50 million at the end of

    this year)The $50 million represents the cumulative sum of the changes in each component created during

    each reporting period (the disclosure note) throughout all prior years !ince this amount

    increased by $15 million" the balance must have been $#5 million last year

    BE 18-3

    ewelling%s paid&in capital ' ecess of par will increase by $*0"000: +"000 hours $2+0 less

    $100"000 par

    Journal entry (not required):

    egal epense (+"000 hours $2+0) ,*0"000

    -ommon stoc. (100"000 shares $1 par per share) 100"000

    /aid&in capital ' ecess of par (remainder) *0"000

    BE 18 5

    -ompute the amount of dividends to be received by common stoc.holders in 201*

    /articulars mount

    (mount in illions)

    Total value of cumulative preference stoc. $+00

    /ercentage of preference dividend *3

    -umulative preference dividend for 201* 2+

    dd: rrears for 201+ +

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    dd: rrears for 2015 +

    -umulative preference dividend $#2

    Total dividends declared $50

    ess: -umulative preference dividend (#2)

    -ommon stoc. dividends $1

    Working notes:

    -ompute cumulative dividends arrears for 201+

    -ompute cumulative dividends arrears for 2015

    BE 18-6

    4orton%s total paid&in capital will decline by $1 million" the price paid to buy bac. the shares

    Journal entry (not required):

    ($ in millions)

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    -ommon stoc. (2 million shares $1 par) 2

    /aid&in capital ' ecess of par (2 million shares $,6) 1

    /aid&in capital ' share repurchase (difference) #

    -ash (2 million shares $50 per share) 1

    6/aid&in capital ' ecess of par: $,00 7 100 million shares

    BE 18 8

    8ennings% retained earnings will decline by $2 million because the $* million sale price is less

    than the sum of the cost of the treasury stoc. ($0 million) and paid&in capital from the previous

    treasury stoc. sale ($1 million)

    Journal entries (not required):

    Purchase of treasury stock ($ in millions)

    Treasury stoc. (2 million shares $0) 1+0

    -ash 1+0

    First sale of treasury stock

    -ash (1 million shares $1) 1

    Treasury stoc. (1 million shares $0) 0

    /aid&in capital ' share repurchase (remainder) 1

    Secon sale of treasury stock

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    -ash (1 million shares $*) *

    /aid&in capital ' share repurchase (balance from first sale) 1

    9etained earnings (remainder) 2

    Treasury stoc. (1 million shares $0) 0

    BE 18-13

    !" in #illions$

    9etained earnings (# million6 shares at $25 per share) 5

    -ommon stoc. (# million6 shares at $1 par per share) #

    /aid&in capital ' ecess of par (remainder) 2

    6 53 *0 million shares # million shares

    BE 18 1%

    ;f a stoc. split is not to be effected in the form of a stoc. dividend" no entry is recorded !ince

    the shares double" but the balance in the common stoc. account is not changed" the par per share

    is reduced" to $50 in this instance

    E 18 1&

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    1

    ccounting e

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    A /aid&in -apital'!hare 9epurchase is a stoc.holders% e

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    &716

    arch 3 (o##on Stock !E$ 1707770777

    Pai-in (a)italE+cess of

    Par !E$ 33707770777

    Pai-in (a)italShare

    .e)urchase !E$ 1507770777

    .etaine Earnings !E$ 507770777

    (ash !$ 36707770777

    E+)lanation:

    9 (o##on Stock is a stockholers e/uity account an the a#ount has ecrease ue to re-

    ac/uisition of co##on stock, 2herefore0 eit (o##on Stock account ith "1707770777,

    9 Pai-in (a)italE+cess of Par is a stockholers e/uity account an the a#ount has

    ecrease ue to ecrease in ca)ital, 2herefore0 eit Pai-in (a)italE+cess of Par

    account ith "33707770777,

    9 Pai-in (a)italShare .e)urchase is a stockholers e/uity account, 2he a#ount has

    ecrease ecause cash )ai for reac/uisition is #ore than cash recei*e hile original

    issue of shares, 2herefore0 eit Pai-in (a)italShare .e)urchase account ith

    "1507770777,

    9 .etaine Earnings is a shareholers e/uity account, 2he a#ount has ecrease ecause

    cash )ai for reac/uisition is #ore than cash recei*e hile original issue of shares,

    2herefore0 eit .etaine Earnings account ith "507770777,

    9 (ash is an asset account, 2he a#ount is ecrease ecause cash is )ai for stock re-

    ac/uisition; therefore0 creit (ash account ith "36707770777,

    Working 'otes:

    (o#)ute co##on stock *alue,

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    !6$

    (o#)ute )ai-in ca)ital in e+cess of )ar *alue,

    !

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    ccounting e/uation: 2he folloing is the accounting e/uation for the issuance of co##on

    stock:

    4ournal entry: .ecor the folloing entry in the ooks of B Se#iconuctors:

    ate

    ccount 2itles an

    E+)lanation Post .ef, eit !"$ (reit !"$

    &716

    ugust 13 (ash !=$ %&07770777

    (o##on Stock !E=$ 107770777

    Pai-in (a)ital

    E+cess of Par

    !E=$ %107770777

    E+)lanation:

    9 (ash is an asset account, 2he a#ount is increase ecause cash is recei*e ue to stock

    issue; therefore0 eit (ash account ith "%&07770777,

    9 (o##on Stock is a stockholers e/uity account an the a#ount has increase ue to

    issuance of co##on stock, 2herefore0 creit (o##on Stock account ith "107770777,

    9 Pai-in (a)italE+cess of Par is a stockholers e/uity account an the a#ount has

    increase ue to increase in ca)ital, 2herefore0 creit Pai-in (a)italE+cess of Par

    account ith "%107770777,

    Working 'otes:

    (o#)ute cash recei*e,

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    !>$

    (o#)ute )ai-in ca)ital in e+cess of )ar *alue,

    'ote: .efer to E/uations !>$ an !17$ for *alues an co#)utations of cash recei*e an

    co##on stock *alue,

    %,

    ccounting e/uation: 2he folloing is the accounting e/uation for the issuance of co##on

    stock:

    Journal entry: Record the following entry in the books of B Semiconductors:

    Date

    Account Titles and

    Explanation Post Ref. Debit ($) Credit ($)

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    2016

    December 15 Cash (A+) 72,000,000

    Common Stock (E+) 2,000,000

    Paid-in Capital

    Excess of

    Par (E+) 70,000,000

    Explanation:

    Cash is an asset account. The amount is increased because cash is received due to stock issue;

    therefore, debit Cash account with $72,000,000.

    Common Stock is a stockholders equity account and the amount has increased due to issuance

    of common stock. Therefore, credit Common Stock account with $2,000,000.

    Paid-in CapitalExcess of Par is a stockholders equity account and the amount has increased

    due to increase in capital. Therefore, credit Paid-in CapitalExcess of Par account with

    $70,000,000.

    Working Notes:

    Compute cash received.

    (11)

    Compute c ommon stock value.

    (12)

    Compute paid-in capital in excess of par value.

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    Note: Refer to Equations (9) and (10) for values and computations of cash received and common

    stock value.

    E18-18

    1.Journalize the transactions that have affected the retained earnings during the year.

    Accounting equation: The following is the accounting equation for the re-acquisition of

    common stock:

    Journal entry: Record the following entry in the books of Corporation BJ:

    Dat

    e

    Account Titles and

    Explanation Post Ref.

    Debit

    ($) redit ($)

    201

    6

    Common Stock (E)

    5,000,00

    0

    Paid-in CapitalExcess of

    Par (E)

    15,000,0

    00

    etained Earnin!s (E) 2,000,00

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    0

    Cas" (#) 22,000,000

    Explanation:

    Common Stock is a stockholders equity account and the amount has decreased due to re-acquisition of

    common stock. Therefore, debit Common Stock account with $5,000,000.

    Paid-in CapitalExcess of Par is a stockholders equity account and the amount has decreased due to

    decrease in capital. Therefore, debit Paid-in CapitalExcess of Par account with $15,000,000.

    Retained Earnings is a stockholders equity account. The amount has decreased because the difference

    due to re-acquisition is debited to this account. Therefore, debit Retained Earnings account with

    $2,000,000.

    Cash is an asset account. The amount is decreased because cash is paid due to stock re-acquisition;

    therefore, credit Cash account with $22,000,000.

    !or"ing #otes:

    opute coon stoc" %alue.

    (1)

    opute paid&in capital in excess of par %alue.

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    Note: Refer to Equation (1) for value and computation of common stock value.

    Accounting equation: The following is the accounting equation to close net income to Retained

    Earnings account:

    Journal entry: Record the following journal entry in the books of Corporation BJ:

    Dat

    e

    Accounts and

    Explanation Post Ref. Debit ($) redit ($)

    2016

    $ncome S%mmar& (E) '',000,000

    etained Earnin!s

    (E) '',000,000

    Explanation:

    Income Summary is a clearing account or temporary account used to close net income, revenues, andexpenses to Retained Earnings account. Since net income is transferred to Retained Earnings account by

    debiting it, debit Income Summary account with $88,000,000.

    Since Retained Earnings accounts amount has increased due to closing of Income Summary account to

    Retained Earnings account, stockholders equity amount has increased. Therefore, credit Retained

    Earnings account with $88,000,000.

    Accounting equation: The following is the accounting equation to record payment of cash dividends:

    Journal entry: Record the following entry in the books of Corporation BJ:

    Dat

    e

    Account Titles and

    Explanation Post Ref. Debit ($) redit ($)

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    2016

    etained Earnin!s

    (E)

    ,000,00

    0

    Cas" (#)

    ,000,00

    0

    Explanation:

    Retained Earnings is a stockholders equity account and the amount is decreased because the cash

    dividends are paid. Therefore, debit Retained Earnings with $33,000,000.

    Cash is an asset account and the amount is decreased. Therefore, credit Cash account with$33,000,000.

    Accounting equation: The following is the accounting equation to record the declaration of stock

    dividends:

    Journal entry: Record the following journal entry in the books of Corporation BJ:

    Dat

    e

    Account Titles and

    Explanation Post Ref.

    Debit

    ($) redit ($)

    201

    6

    etained Earnin!s (E)

    20,000,0

    00

    Common Stock (E) *,000,000

    Paid-in Capital in Excess of 16,000,000

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    Par (E)

    Explanation:

    Retained Earnings is a stockholders equity account. The amount has deceased because stock

    dividends are distributed. Therefore, debit Retained Earnings account with $20,000,000.

    Common Stock is a stockholders equity account and the amount has increased due to the distribution of

    stock dividends. Therefore, credit Common Stock account with $4,000,000.

    Paid-in Capital in Excess of Par is a stockholders equity account and the amount has increased due to

    increase in capital excess of common stock value. Therefore, credit Paid-in Capital in Excess of Par

    account with $16,000,000.

    Working Notes:opute stoc" di%idends aount.

    (2)

    opute coon stoc" %alue.

    (3)

    #ote: Refer to Equation (2) for value and computation of stock dividend shares.

    opute paid&in capital in excess %alue.

    #ote: Refer to Equation (3) for value and computation of common stock value.

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    2.

    'tateent of retained earnings: This is an equity statement which shows the changes in theowners equity over a period of time. This statement uses the information from income statement and

    provides the retained earnings information over a reporting period to the balance sheet.

    Prepare stateent of retained earnings for orporation J for te year ended

    *+,-.

    orporation J

    'tateent of Retained Earnings

    or te /ear Ended Deceber 0,1 *+,-

    +e!innin! alance, an%ar& 1, 2016 ./0,000,000

    ess etirement of common stock (2,000,000)

    ess Cas" diidends (,000,000)

    ess Stock diidends(20,000,000)

    Ending balance1 Deceber 0,1 *+,-$,*01+++1+++

    (P 18 6

    opute te aount of cas di%idends paid by orporation 2 in *+,-.

    'tep ,: Compute the outstanding number of after stock-split.

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    'tep *: Compute cash dividends paid by Corporation L.

    Therefore, the correct answer is .