[Financial Accounting] Chapter 11

Nguyen Dieu Huyen
Chapter 11
BE 11-1
Avantage Disadvantage
Corporation management - separation of ownership and
Separate legal existence management
Limited liability of shareholders Government regulations
Transferable ownership rights Additional taxes
Ability to acquire capital
Continuous life
Corporation management - professional manager
BE 11-2
May 10 Cash 26,000

Share capital - ordinary 12,000
Share premium-ordinary 14,000
BE 11-6
May 10 Cash 590,000

Share capital - preference 500,000
Share premium- preference 90,000
BE 11-7
November 1 Cash Dividends ( $2 * 80,000) 160,000

Dividends payable 160,000
Dec 31 Dividends payable 160,000
Cash 160,000
BE 11-8
November 1 Cash Dividends ( 56,000 shares * 10% * $16) 89,600

Dividends payable(56,000 * 10% * $10) 56,000
Dec 31 Dividends payable 56,000

Cash 56,000
BE 11-10
Abbott Inc.
Retained Earnings Statement
for the year ended December 31, 2014
Balanced, Jan 1 220,000
Add: Net income 140,000
360,000
Less: Dividends 55,000
55,000
Balance, Dec 31 305,000
BE 11-13
Total equity 817,000

Less: Preference share equity 0
Ordinary shareholders's equity 817,000
Ordinary share outstanding 38,000
Book value per share 21.5
E11-1
1. A corporation is an entity separate and distinct from its True. Be treated as an entity which is distinct from that of
owners. it's owners (stock holders)
2. As a legal entity, a corporation has most of the rights
and privileges of a person. TRUE
False. Most of largest corporations are actually publicly
3. Most of the largest corporations are privately held held and are listed in the stock exchange rather than being
corporations. privately held
4. Corporations may buy, own and sell property, borrow
money, enter into legally binding contracts; and sue and
be sued TRUE
5. The net income of a corporation is not taxed as a False. A corporation is a separate legal entity and their net
separate entity. income shall be subject to tax as a separate legal entity
6. Creditors have a legal claim on the personal assets of False. The liability of corporation is limited, therefore
the owners of a corporation if the corporation does not creditors do not have the right to claim from personal assets
pay its debts. of owners for dues of the corporation
7. The transfer of shares from one owner to another False. The stocks of a corporation are freely transferrable
requires the approval of either the corporation or other and do not require any permission of other stockholders or
shareholders. corporation
8. The board of directors of a corporation legally owns the False. Stockholders are considered as legal owners of the
corporation. corporation, not the board
9. The chief accounting officer of a corporation is the
controller. TRUE
10. Corporations are subject to fewer regulations than False.Corporations are subject to more regulations than
partnerships or proprietorships. partnerships or proprietorships.
E11-4
a May 10 Cash 48,000

b May 10 Cash 48,000

c May 10 Cash 48,000

d May 10 Service expense 48,000

e May 10 Land 48,000

E11-5
Treasury shares 250,000

Cash 250,000
Cash (1,500 *54) 81,000

Treasury shares (1,500*50) 75,000
Share premium-treasury 6,000
Cash (2,000 *49) 98,000

Cash (1,500 *40) 60,000

E11-6
Record the issuance of the preference shares
a. January 1 Cash 2,080,000

Preferred stock (100,000 * $20) 2,000,000
If the preference shares are not cumulative, preference

b. stock par value 2,000,000
Dividend for current year only as it is non cumulative
hence dividend would be given only for the current year.
Total dividen paid 550,000
2,000,000 * 9% 180,000
Dividend paid to common stockholders 370,000
If the preference shares are cumulative, cumulative

preference shareholders would be paid dividend for all
c. pending years
Total dividen paid 550,000
Dividends of preference stockholders for 3 years 180,000 * 3 540,000
Dividend paid to common stockholders 10,000
E11-7
March 2 Service expense 38,000

Share capital - ordinary (5,000*1) 5,000
June 12 Cash 475,000

Share capital - ordinary (60,000 *1) 60,000
July 11 Cash (1,000 * $110) 110,000

Nov 28 Treasury shares 18,000

Cash 18,000
E11-9
a. Mar 1 Treasury shares (50,000 * 12) 600,000

Cash 600,000
Jul 1 Cash (10,000 * 14) 140,000

Treasury shares (10,000 * 12) 120,000
Sep 1 Cash (8,000 * 11) 88,000

Treasury shares (8,000 *12) 96,000
b Sep 1 Cash (8,000 * $9) 72,000

Share premium-treasury (20,000-8,000) 12,000
Retained earnings 12,000
Treasury shares (8,000 *12) 96,000
E11-10
a February 1 Cash (12,000* $53) 636,000

Share capital - preference(12,000* $50) 600,000
Share premium-preference 36,000
July 1 Cash (23,000* $57) 1,311,000

Share capital - preference(23,000*50) 1,150,000
Share premium- preference 161,000
b Perrin Company
Statement of changes in equity
Share premium -
Balance Share capital- preference preference
Issued 12,000 shares for cash at $53 per share 600,000 36,000
Issued 23,000 shares for cash at $57 per share. 1,150,000 161,000
Total 1,750,000 197,000
Suliman Corporation
Statement of financial position
Asset
Cash 1,947,000
Equity
Share capital- preference 1,750,000
Share premium -preference 197,000

1,947,000
E11-11
a Ordinary shares are outstanding Shares issued - treasury stock

600,000 - 75,000 525,000
The stated value of ordinary shares= issued capital /

b. shares issued Share capital-ordinary 1,200,000
Shares issued 600,000
Stated value 2
The stated value of ordinary shares= issued capital /

c. shares issued Share capital-ordinary 300,000
Shares issued 5,000
60
d. Dividend rate = 30,000/ share capital- preference 30,000/300,000 10.00%
Retained earning would be no change because the

dividends of $60,000 were in arrears had not been
declared so it could not deduct arrear of dividends from
e. retained earning 1,858,000
E11-13
a. Apr 1 Cash (25,000 * $17) 425,000

Share capital - ordinary ( 25,000* $4) 100,000
June 15 Cash Dividends ( 98,000 + 25,000 shares) 123,000

Jul 10 Dividends payable 123,000
Cash 123,000
Dec 1 Cash (2,000 * $17) 38,000

Share capital - ordinary ( 2,000* $4) 8,000
Dec 15 Cash Dividends ( 98,000 + 25,000 shares + 2000) * $1.2 150,000

Dividends payable should be shown in the current liablities portion of the balance sheet. Dividend should be closed to
b retained earnings account, which results in reduced retained earnings balances.
E11-17
Abbott Inc.
Retained Earnings Statement
for the year ended December 31, 2014
Balanced, Jan 1 550,000
Depreciation errors -40,000
860,000
Less: Cash Dividends 96,000
Less: Share Dividends 80,000 176,000
Balance, Dec 31 684,000
E11-21
Perrin Company
Statement of changes in equity
Share Share
premium - premium - Retained Treasury
Balance Share capital- preference Share capital-ordinary preference ordinary earnings shares
400,000 220,000 250,000
1. Issued preference shares with a par value of $125,000
for $165,000. 125,000 40,000
2. Purchased treasury shares (ordinary) for $40,000. 40,000
3. Earned net income of $140,000. 140,000
4.Declared and paid cash dividends of $48,000. -48,000
Total 125,000 400,000 40,000 220,000 342,000 40,000
Perrin Company
Statement of financial position
Equity
Share capital- preference 125,000
Share capital-ordinary 400,000
525,000
Share premium -preference 40,000
Share premium -ordinary 220,000 260,000
785,000
Retained earnings 250,000

Less: Treasury shares 48,000
Less: Treasury shares 40,000
Total equity 1,087,000

[Financial Accounting] Chapter 11

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Nguyen Dieu Huyen

May 10 Cash 26,000

May 10 Cash 590,000

November 1 Cash Dividends ( $2 * 80,000) 160,000

November 1 Cash Dividends ( 56,000 shares * 10% * $16) 89,600

Dec 31 Dividends payable 56,000

Total equity 817,000

a May 10 Cash 48,000

b May 10 Cash 48,000

c May 10 Cash 48,000

d May 10 Service expense 48,000

e May 10 Land 48,000

Treasury shares 250,000

Cash (1,500 *54) 81,000

Cash (2,000 *49) 98,000

Cash (1,500 *40) 60,000

Record the issuance of the preference shares

a. January 1 Cash 2,080,000

If the preference shares are not cumulative, preference

Dividend paid to common stockholders 370,000

If the preference shares are cumulative, cumulative

March 2 Service expense 38,000

June 12 Cash 475,000

July 11 Cash (1,000 * $110) 110,000

Nov 28 Treasury shares 18,000

a. Mar 1 Treasury shares (50,000 * 12) 600,000

Jul 1 Cash (10,000 * 14) 140,000

Sep 1 Cash (8,000 * 11) 88,000

b Sep 1 Cash (8,000 * $9) 72,000

a February 1 Cash (12,000* $53) 636,000

July 1 Cash (23,000* $57) 1,311,000

Share premium -preference 197,000

a Ordinary shares are outstanding Shares issued - treasury stock

The stated value of ordinary shares= issued capital /

The stated value of ordinary shares= issued capital /

d. Dividend rate = 30,000/ share capital- preference 30,000/300,000 10.00%

Retained earning would be no change because the

a. Apr 1 Cash (25,000 * $17) 425,000

June 15 Cash Dividends ( 98,000 + 25,000 shares) 123,000

Dec 1 Cash (2,000 * $17) 38,000

Dec 15 Cash Dividends ( 98,000 + 25,000 shares + 2000) * $1.2 150,000

Balance, Dec 31 684,000

Retained earnings 250,000

Total equity 1,087,000

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