UNIVERSAL COLLEGES OF PARANAQUE INC.

COLLEGE OF BUSINESS AND ACCOUNTANCY

FINANCIAL ACCOUNTING AND REPORTING 2

EXERCISE PROBLEM 3:

1. The stockholders' equity section of Gunkel Corporation as of December 31, 2012, was as
follows:
Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares $ 20,000
Paid-in capital in excess of par 30,000
Retained earnings 95,000

On March 1, 2013, the board of directors declared a 15% stock dividend, and accordingly
1,500 additional shares were issued. On March 1, 2011, the fair value of the stock was $6
per share. For the two months ended February 28, 2013, Gunkel sustained a net loss of
$10,000.

What amount should Gunkel report as retained earnings as of March 1, 2013?

a. $76,000.
b. $82,000.
c. $86,000.
d. $92,000.

2. The stockholders' equity of Howell Company at July 31, 2012 is presented below:
Common stock, par value $20, authorized 400,000 shares;
issued and outstanding 160,000 shares $3,200,000
Paid-in capital in excess of par 160,000
Retained earnings 650,000

On August 1, 2012, the board of directors of Howell declared a 10% stock dividend on
common stock, to be distributed on September 15th. The market price of Howell's
common stock was $35 on August 1, 2012, and $38 on September 15, 2012.

What is the amount of the debit to retained earnings as a result of the declaration and
distribution of this stock dividend?
a. $320,000.
b. $560,000.
c. $608,000.
d. $400,000.
3. On January 1, 2012, Dodd, Inc., declared a 15% stock dividend on its common stock when the
fair value of the common stock was $20 per share. Stockholders' equity before the stock dividend
was declared consisted of:

Common stock, $10 par value, authorized 200,000 shares;

issued and outstanding 120,000 shares $1,200,000
Additional paid-in capital on common stock 150,000
Retained earnings 700,000
Total stockholders' equity $2,050,000

What was the effect on Dodd’s retained earnings as a result of the above transaction?
a. $180,000 decrease
b. $360,000 decrease
c. $600,000 decrease
d. $300,000 decrease

4. On January 1, 2012, Culver Corporation had 110,000 shares of its $5 par value common
stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held
in the treasury. On December 1, when the market price of the stock was $8, the
corporation declared a 15% stock dividend to be issued to stockholders of record on
December 16, 2012. What was the impact of the 15% stock dividend on the balance of the
retained earnings account?

a. $ 75,000 decrease
b. $120,000 decrease
c. $132,000 decrease
d. No effect

100,000 × .15 × $8 = $120,000.

5. At the beginning of 2013, Flaherty Company had retained earnings of $250,000. During the year
Flaherty reported net income of $100,000, sold treasury stock at a “gain” of $36,000, declared a
cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10
par value) when the fair value of the stock was $20 per share.

The amount of retained earnings available for dividends at the end of 2013 was
a. $230,000.
b. $260,000.
c. $266,000.
d. $296,000.

6. Masterson Company has 420,000 shares of $10 par value common stock outstanding.
During the year Masterson declared a 10% stock dividend when the market price of the
stock was $36 per share. Three months later Masterson declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $1,789,200
b. $1,512,000
c. $277,200
d. $264,000
7. Masterson Company has 420,000 shares of $10 par value common stock outstanding.
During the year Masterson declared a 10% stock dividend when the market price of the
stock was $36 per share. Three months later Masterson declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $1,789,200
b. $1,512,000
c. $277,200
d. $264,000

8. Mingenback Company has 560,000 shares of $10 par value common stock outstanding.
During the year Mingenback declared a 10% stock dividend when the market price of the
stock was $48 per share. Two months later Mingenback declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by:
a. $352,000.
b. $369,600.
c. $2,688,000.
d. $3,057,600.

9. Written, Inc. has outstanding 500,000 shares of $2 par common stock and 100,000 shares of no
par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and
nonparticipating. Dividends have been paid in every year except the past two years and the
current year.

Assuming that $250,000 will be distributed as a dividend in the current year, how much
will the common stockholders receive?
a. Zero.
b. $130,000.
c. $170,000.
d. $210,000.

Assuming that $105,000 will be distributed as a dividend in the current year, how much
will the preferred stockholders receive?
a. $35,000.
b. $40,000.
c. $80,000.
d. $105,000.

Assuming that $305,000 will be distributed, and the preferred stock is also participating,
how much will the common stockholders receive?
a. $185,000.
b. $150,000.
c. $155,000.
d. $80,000.

10. Yoder, Inc. has 100,000 shares of $10 par value common stock and 50,000 shares of $10
par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the
preferred stock are one year in arrears. Assuming that Yoder wishes to distribute
$270,000 as dividends, the common stockholders will receive
a. $60,000.
 b. $110,000.
c. $160,000.
d. $210,000.

11. Mann Co. has outstanding 60,000 shares of 8% preferred stock with a $10 par value and
150,000 shares of $3 par value common stock. Dividends have been paid every year
except last year and the current year. If the preferred stock is cumulative and
nonparticipating and $300,000 is distributed, the common stockholders will receive
a. $0.
b. $204,000.
c. $252,000.
d. $300,000.

12. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2009 for $300,000. On
December 15, 2012, Farmer declared a property dividend of all of its Eaton Corp. shares
on the basis of one share of Eaton for every 10 shares of Farmer common stock held by
its stockholders. The property dividend was distributed on January 15, 2013. On the
declaration date, the aggregate market price of the Eaton shares held by Farmer was
$500,000. The entry to record the declaration of the dividend would include a debit to
Retained Earnings of
a. $0.
b. $200,000.
c. $300,000.
d. $500,000.

13. On May 1, 2012, Ziek Corp. declared and issued a 10% common stock dividend. Prior to
this dividend, Ziek had 100,000 shares of $1 par value common stock issued and
outstanding. The fair value of Ziek 's common stock was $20 per share on May 1, 2012.
As a result of this stock dividend, Ziek's total stockholders' equity

a. increased by $200,000.
b. decreased by $200,000.
c. decreased by $10,000.
d. did not change

14. On December 31, 2012, the stockholders' equity section of Arndt, Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $ 90,000
Additional paid-in capital 116,000
Retained earnings 154,000
Total stockholders' equity $360,000

On March 31, 2013, Arndt declared a 10% stock dividend, and accordingly 900 additional
shares were issued, when the fair value of the stock was $18 per share. For the three
months ended March 31, 2013, Arndt sustained a net loss of $32,000. The balance of
Arndt’s retained earnings as of March 31, 2013, should be
a. $105,800.
b. $113,000.
c. $114,800.
d. $122,000.
15. At December 31, 2012 and 2013, Plank Corp. had outstanding 3,000 shares of $100 par
value 8% cumulative preferred stock and 15,000 shares of $10 par value common stock.
At December 31, 2012, dividends in arrears on the preferred stock were $12,000. Cash
dividends declared in 2013 totaled $45,000. What amounts were payable on each class of
stock?
Preferred Stock Common Stock
a. $24,000 $21,000
b. $33,000 $12,000
c. $36,000 $9,000
d. $45,000 $0

END OF PROBLEM