IFA, IL 01, FR222

Intermediate Financial Accounting

Topic:
Shareholders' Equity
(Theory + MCQ + Math & Previous Year Questions)

Mizanur Robel,

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ICMAB Previous Year Questions Scenario 2021 Syllabus

January_2022 May_2022 September_2022 January_2023 May_2023 September_2023 January_2024
4-b -- 5-b -- 5-c 6-a --
Shareholders' Equity
Stockholders’ Equity (also known as Shareholders Equity) is an account on a company’s balance
sheet that consists of share capital plus retained earnings. It also represents the residual value of
assets minus liabilities.

By rearranging the original accounting equation, Assets = Liabilities + Stockholders Equity,

It can also be expressed as Stockholders Equity = Assets – Liabilities.

And, Shareholders’ Equity = Capital Stock + Additional Paid-In Capital + Retained Earnings +
Other Comprehensive Income

Components of Stockholders Equity

Shareholders Equity is influenced by several components:

1) Share Capital –

It contains the capital invested by the company’s investors. The shares/stock represent the
ownership of the investors. Companies commonly issue either ordinary stock or preferred
stock. The Statement of Shareholder Equity captures movement or changes in capital structure
and value.

Share Capital = Capital at the beginning of the period (+) Shares issued during the period (-)
Buyback /Sale/Repurchase of Shares (Treasury shares).

Common Stock- Common stockholders have more rights in the corporation in terms of voting
on company decisions, but they are last on the priority list when it comes to paying. In the event
of liquidation, common stockholders will be paid first, followed by bondholders and preference
shareholders. The remainder will be distributed to common investors.

Preference Stock- Preference investors have a greater claim on the company’s earnings and
assets than common stockholders. They will be eligible to dividend distributions before common
investors do. They have no voting privileges.

Treasury Stock- The value of Treasury Stock is the value of shares purchased/repurchased by the
corporation. It has the effect of reducing the share capital. It is the gap between the number of
shares issued and the number of shares outstanding.
 2) Retained Earnings –

Retained earnings are the company’s overall profits/earnings accumulated over time. It is used by
the company to manage its working capital situation, acquire assets, repay debt, and so on. These
have not yet been distributed to stockholders and are being held by the corporation for future
investment in the business.

If a profitable company’s retained earnings are not paid to shareholders, they will exhibit a
growing trend. The fluctuation of retained earnings is captured in the stockholder’s equity
statement.

Retained Earnings= Retained Earnings at the beginning of the period (+) net income /loss
during the current reporting period (-) Dividends paid to stockholders.

3) Net Income & Dividends –

Net income increases retained earnings while dividend payments reduce retained earnings.

The Purpose of The Statement of Shareholder Equity

1) It can assist you in making financial decisions

2) It can inform you how well your company is run
3) It can assist you in overcoming financial challenges
MCQ -

1. In the audit of a medium sized manufacturing concern, which one of the following areas would
be expected to require the least amount of the audit time?
a. Owner’s equity c. Assets.
b. Revenue. d. Liabilities.

2. Which of the following assertions is least likely considered by the auditor in an audit of
shareholder’s equity?
a. Completeness. c. Presentation and disclosure.
b. Existence. d. Rights and obligations

3. Because of the limited number of transactions involved in shareholder’s equity items, the
auditor normally assess control risk at the maximum level and performs
a. Detailed test of balances. c. Detailed analytical procedure.
b. Detailed test of transactions. d. Detailed test of controls.

4. A registrar/transfer agent system relating to capital stock is most likely used by:
a. A small, nonpublic company. c. All companies.
b. A large, publicly traded company. d. Not even one company.

5. An auditor obtains evidence of stockholders’ equity transactions for a publicly traded company
by reviewing the entity’s:
a. Minutes of board of directors’ meetings. c. Canceled stock certificates.
b. Registrar’s record of interbank transfers. d. Treasury stock certificate book.

6. Changes in capital stock accounts should normally be approved by:

a. The board of directors c. The stockholders.
b. The audit committee. d. The president.

7. Which of the following is the most important consideration of an auditor when

examining the stockholders’ equity section of a clients’ statement of financial position?
a. Changes in the capital stock account are verified by an independent stock transfer agent.
b. Stock dividends and/or stock splits during the year under audit were approved by the
stockholders.
c. Entries in the capital stock account can be traced to resolution in the minutes of the Board of
Directors meeting.

8. Which of the following procedures is least likely in the audit of capital stock?
a. Examine all outstanding stock certificates for completeness.
b. Account for the proceeds from stock issues.
c. Reconcile shares outstanding with the general ledger.
d. Evaluate compliance with stock option plans.
9. For a large publicly traded client the auditor’s examination of capital stock accounts will not
normally include:
a. Analysis of capital stock accounts.
b. Confirmation of shares issued with the independent registrar.
c. Accounting for the proceeds of major stock issues.
d. Reconciliation of a stock certificate book with the general ledger.

10. Which of the following is correct in confirming shareholder’s equity items to

independent registrar and stock transfer agent?
a. The confirmation request should be written under the client’s letterhead and
mailed by the Auditor.
b. Replies to confirmation request should be sent to the Board of Directors.
c. The control of the dispatch and receipt of confirmation request should be under the
control of the appropriate client personnel.

11. When the client of a CPA firm does not maintain its own shareholder records, the auditor
should obtain written confirmation from the transfer agent and registrar concerning
a. Guarantees of preferred stock liquidation value
b. The number of shares subject to repurchase agreements (treasury)
c. Any restrictions on dividend payments
d. The type and number of shares issued and outstanding.

12. Company A does not employ an independent stock transfer agent, but rather issues its own
stock and maintains its stock records. When outstanding shares are transferred from one holder
to another the certificate of the selling shareholder should be:
a. Cancelled (generally by perforation) and attached to the certificate book.
b. Destroyed to prevent fraudulent reissuance.
c. Retained by the selling shareholder.
d. Sent to the state’s registrar of investment securities.

13. An audit program for the examination of the retained earnings account should include a step
that requires verification of the -
a. Market value used to charge retained earnings to account for two-for-one stock split.
b. Approval of the adjustment to the beginning balance as a result of a write-down of an account
receivable.
c. Authorization for both cash and stock dividends.
d. Gain or loss resulting from disposition of treasury shares

14. In auditing retained earnings, the following item does not concern the auditor even if it was
not approved by the BOD?
a. Issuance of convertible debt securities.
b. Declaration of 20% share dividends.
c. Issuance of redeemable preferred shares.
d. Changes in retained earnings due to closing of net income.
15. During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether
there are restrictions on retained earnings resulting from loans, agreements, or state law. This
audit procedure most likely is intended to verify management’s assertion of
a. Existence or occurrence. c. Valuation or allocation.
b. Completeness. d. Presentation and disclosure.

16. Which of the following transactions is an auditor most likely to examine when auditing
the retained earnings account?
a. Changing from one method of depreciation to another.
b. Correcting an error in depreciation in depreciation in a prior year.
c. Adjusting the percentage used to estimate the allowance for doubtful accounts.
d. Changing from the FIFO to LIFO method of inventory valuation.

17. The audit approach for acquired treasury stock will normally include:
a. Confirmation with shareholders.
b. Inspection of certificates
c. Inspection of cash receipts entries.
d. Recomputation of all gains and losses.

18. An auditor should trace corporate stock issuances and treasury stock transactions to
the:
a. Numbered stock certificates.
b. Articles of incorporation.
c. Transfer agent’s records.
d. Minutes of the Board of Directors.

19. When auditing treasury shares, one objective of the auditor includes checking whether
a. Gain on reissuance of treasury shares is included in retained earnings.
b. Loss on reissuance of treasury shares is included in profit or loss.
c. Cash received from reacquisition of shares is received by the Board of Directors.
d. Retained earnings were restricted for the amount of issue price of the treasury shares.

20. Footing the shares outstanding in the stock register and comparing the total to shares
outstanding in the general ledger stock account addresses the audit objective of-
a. Completeness. c. Ownership.
b. Validity. d. Valuation

21. Two classifications appearing in the paid-in capital section of the balance sheet are
a. preferred stock and common stock.
b. paid-in capital and retained earnings.
c. capital stock and additional paid-in capital.
d. capital stock and treasury stock.
22. A disadvantage of the corporate form of organization is
a. professional management. c. ease of transfer of ownership.
b. tax treatment. d. lack of mutual agency.

23. Alt Corp. issues 5,000 shares of $10 par value common stock at $14 per share. When the
transaction is recorded, credits are made to:
a. Common Stock $50,000 and Paid-in Capital in Excess of Stated Value $20,000.
b. Common Stock $70,000.
c. Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000.
d. Common Stock $50,000 and Retained Earnings $20,000.

24. If common stock is issued for an amount greater than par value, the excess should be credited
to
a. Cash. c. Paid-in Capital in Excess of Par Value.
b. Retained Earnings. d. Legal Capital.

25. Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends
a. Increase No change c. Decrease Decrease
b. No change Decrease d. No change No change

26. Which one of the following events would not require a journal entry on a corporation’s books?
a. 2-for-1 stock split. c. 2% stock dividend.
b. 100% stock dividend. d. $1 per share cash dividend.

27. The term legal capital is a descriptive term for

a. stockholders’ equity. c. residual equity.
b. par value. d. market value.

28. On January 1, Ripken Corporation had 80,000 shares of $10 par value common stock
outstanding. On May 11 the company declared a 10% stock dividend to stockholders of record
on May 25. Market value of the stock was $13 on May 11. The entry to record the transaction of
May 11 would include a
a. debit to Stock Dividends for $104,000.
b. credit to Cash for $104,000.
c. credit to Common Stock Dividends Distributable for $104,000.
d. credit to Common Stock Dividends Distributable for $24,000.

29. The amount of stock that may be issued according to the corporation’s charter is referred to
as the
a. authorized stock. c. unissued stock.
b. issued stock. d. outstanding stock.
30. Dividends in arrears are dividends on
a. cumulative preferred stock that have been declared but have not been paid.
b. non-cumulative preferred stock that have not been declared for a given period of time.
c. cumulative preferred stock that have not been declared for a given period of time.
d. common dividends that have been declared but have not yet been paid.

31. Outstanding stock of the Bush Corporation included 40,000 shares of $5 par common stock
and 20,000 shares of 5%, $10 par non-cumulative preferred stock. In 20X1, Bush did not declare
or pay any dividends. In 20X2, Bush declared and paid dividends of $24,000. How much of the
20X2 dividend was distributed to preferred shareholders?
a. $14,000. c. $10,000.
b. $18,000. d. $20,000

32. Outstanding stock of the Bush Corporation included 40,000 shares of $5 par common stock
and 20,000 shares of 5%, $10 par cumulative preferred stock. In 20X1, Bush did not declare or pay
any dividends. In 20X2, Bush declared and paid dividends of $24,000. How much of the 20X2
dividend was distributed to preferred shareholders?
a. $14,000. c. $10,000.
b. $18,000. d. $20,000

33. Which of the following is not true of a corporation?

a. It may buy, own, and sell property.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may enter into binding legal contracts in its own name.

34. Tomlinson Packaging Corporation began business in 2017 by issuing 50,000 shares of $5 par
common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year
end, the common stock had a market value of $10. On its December 31, 2017 balance sheet,
Tomlinson Packaging would report
a. Common Stock of $500,000.
b. Common Stock of $250,000.
c. Common Stock of $400,000.
d. Paid-in Capital of $330,000.
Math –

1) The financial statements of BST Ltd showed a total equity balance of Tk.25,00,000 for the
reporting period ended 31 December 2020. During the 2021 financial year, BST recognized
the following transactions:
- Factory building were revalued from their carrying amount of Tk.500,000 to Tk.750,000;
- A dividend of Tk.50,000 which was declared in the previous financial year, was paid to
shareholders on 31march 2021;
- A dividend for the current financial year of Tk.75,000 was declared on 15 December 2021.
The Tk.75,000 is unpaid and has been recognized as a liability at the end of the reporting
period.
- The entity made a profit-tax of Tk.350,000.

Required: What is the closing balance of the total equity as at 31 December 2021.
[CMA Exam September 2023]

2) The following is a summary of all relevant transactions of Vicario Co. since it was organized
in 2015. In 2015, 15,000 shares were authorized and 7,000 ordinary share (Tk.50 par value)
were issued at a price of Tk. 57. In 2016, 1,000 were issued as a share dividend when a
share was selling for Tk. 60. Three hundred ordinary shares were brought in 2017 at a cost
of Tk. 64 per share. These shares are still in the company treasury.
In 2016, 10,000 preference shares were authorized and the company issued 5,000 of them
(Tk. 100 par value) at Tk. 113. Some of the preference shares were reacquired by the
company and later reissued for Tk. 4,700 more than it cost the company.

The company has earned a total of Tk. 610,000 in net income and paid out a total Tk.
312,600 in cash dividends since incorporation.

Required:
Prepare the equity section of the statement of financial position in proper form for Vicario Co. as
of December 31, 2017. Account for treasury shares using the cost method.
[Kieso P15-9, CMA Exam January 2022]
 3) Haver Ltd is a rapidly expanding company which was incorporated two years ago to benefit
from limited liability, issuing 10,000 Tk 1 shares for Tk 5 per share. On 1 January 2022 the
company revalued its non-current assets to improve its statement of financial position,
and thus help it to raise finance, giving a revaluation surplus of Tk 400,000. The remaining
useful life of these assets at the date of revaluation was 25 years.

On 1 January 2022 retained earnings brought forward were Tk 80,000 and profits for
the year ended 31 December 2022 were Tk 40,000. The directors, who are also equity
holders, are considering taking dividends for the first time but are unsure how much they
may distribute.
Required:
(i) Explain the calculation of and calculate the distributable profits for Haver Ltd at 1
January 2022.
(ii) Explain the calculation of and calculate the distributable profits for Haver Ltd
at 31 December 2022.
(iii) Explain how the revaluation surplus should be treated if in the future the assets
are sold.
[CA Manual P 156, CMA Exam May 2023]

4) On January 1, 2014, D Corporation had the following stockholders’ equity accounts.

Common Stock (no-par value, 100,000 shares issued and outstanding) Tk. 28,00,000
Retained Earnings 10,00,000
During the year, the following transactions occurred.
Feb. 1 Declared a Taka 1 cash dividend per share to stockholders of record on
February 15, payable March 1.
Mar. 1 Paid the dividend declared in February.
Apr. 1 Announced a 4-for-1 stock split. Prior to the split, the market price per share was
Taka 36.
July 1 Declared a 5% stock dividend to stockholders of record on July 15, distributable
July 31. On July 1, the market price of the stock was Taka 13 per share.
July 31 Issued the shares for the stock dividend.
Dec. 1 Declared a Taka 0.50 per share dividend to stockholders of record on December
15, payable January 5, 2015.
Dec. 31 Determined that net income for the year was Taka 700,000.
Required:
Prepare the stockholders’ equity section of the balance sheet at (i) March 31, (ii) June 30, (iii)
September 30.
[CMA Exam September 2022, April 2019]
 5) Ocampo Inc. reported the following amounts in the shareholders’ equity section of its
December 31, 2019, balance sheet:
Preferred shares, Tk.2 dividend, 10,000 shares authorized, 4,500 issued Tk.225,000
Common shares, 100,000 shares authorized, 35,000 issued 280,000
Contributed surplus 7,000
Retained earnings 590,000
Accumulated other comprehensive income 115,000
The contributed surplus arose from past re-acquisitions of common shares.

During 2020, the following transactions occurred in the order listed below:
(i) Issued 5,000 common shares at Tk.9 per share.
(ii) Reacquired 10,000 of the outstanding common shares for Tk.14 per share and
cancelled them.
(iii) Declared a 10% share dividend on the outstanding common shares. The ex-dividend
price of the shares was Tk.16.
(iv) Issued the share dividend.
(v) Exchanged 1,000 preferred shares for a piece of vacant land. The land’s fair value, as
determined by a qualified appraiser, was Tk.19,000 and the shares were actively traded
on this day for Tk.21 per share.
(vi) Declared and paid the preferred share dividend and a Tk.1 per share dividend on the
common shares.
Required:
(1) Prepare the journal entries to record the 2020 equity transactions.
(2) Prepare the Statement of Changes in Shareholders’ Equity for the year ended December 31,
2020. Net income for the year was Tk.120,000 and other comprehensive income resulting from a
revaluation of property, plant, and equipment was Tk.23,000.
[V. Roestel 18.10, CMA Exam June 2021]

6) During 2019 Lion Ltd issued 200,000 ordinary Taka 1 shares at Taka 1.20 per share and
100,000 redeemable Taka 1 preference shares at Taka 1.10 per share. During 2019 Lion Ltd
also made a 1 for 4 bonus issue of the ordinary shares held at the start of the year by the
existing 200,000 shareholders.
In accordance with IAS 7 Cash Flow Statements, how much should be shown in Lion Ltd’s
cash flow statement for 2019 in respect of proceeds from the issue of equity share capital
in respect of the above share issues?
[CMA Exam June 2020]
 7) Elizabeth Company reported the following amounts in the stockholders’ equity section of
its December 31, 2015, balance sheet.

During 2016, Elizabeth Company took part in the following transactions concerning stockholders’
equity.
(1) Paid the annual 2015 Tk.8 per share dividend on preferred stock and a Tk.2 per share
dividend on common stock. These dividends had been declared on December 31, 2015.
(2) Purchased 2,700 shares of its own outstanding common stock for Tk.40 per share. Elizabeth
Company uses the cost method.
(3) Reissued 700 treasury shares for land valued at Tk.30,000.
(4) Issued 500 shares of preferred stock at Tk.105 per share.
(5) Declared a 10% stock dividend on the outstanding common stock when the stock is selling
for Tk.45 per share.
(6) Issued the stock dividend.
(7) Declared the annual 2016 Tk.8 per share dividend on preferred stock and the Tk.2 per share
dividend on common stock. These dividends are payable in 2017.
Instructions:
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2016, stockholders’ equity section. Assume 2016 net income was Tk.330,000.
[Kieso E15-18, CMA Exam December 2019]
8) S Corporation’s charter authorized issuance of 100,000 ordinary shares of Taka 10 par
value and 50,000 shares of Taka 50 preference shares. The following transactions involving
the issuance of shares were completed. Each transaction is independent of the others.
(i) Issued a Taka 10,000, 9% bond payable at par and gave as a bonus one preference share,
which at that time was selling for Taka 106 a share.
(ii) Issued 500 ordinary shares for machinery. The machinery had been appraised at Taka 7,100;
the seller’s book value was Taka 6,200. The most recent market price of the ordinary shares is
Taka 16 a share.
(iii) Issued 375 ordinary shares and 100 preference shares for a lump sum amounting to Taka
10,800. The ordinary had been selling at Taka 14 and the preference at Taka 65.
(iv) Issued 200 shares of ordinary and 50 shares of preference for furniture and fixtures. The
ordinary shares had a fair value of Taka 16 per share; the furniture and fixtures have a fair value
of Taka 6,500.
Required: Record the transactions listed above in journal entry form.
[CMA Exam December 2018]
 9) Lainez Ltd. was incorporated on January 1, 2021. During its first year of operations, the
following share transactions occurred:
January 1: Issued 20,000 common shares for cash at a price of $15 per share.
February 1: Issued 500 common shares to settle an invoice from the law firm that handled
the incorporation of the company. The invoice amount was $9,000.
March 15: Issued 10,000 preferred shares for cash at a price of $50 per share.
April 30: Issued 2,500 common shares in exchange for a piece of specialized
manufacturing equipment. The carrying value of the equipment on the seller’s
books was $40,000, but the asking price was $55,000. An independent
engineering report estimated the value in use for this equipment at $50,000.
June 15: Issued 5,000 common shares for cash at a price of $25 per share.
Required:
Prepare the journal entries for the share transactions.
[V. Roestel, London E18.2]

10) Pinera Ltd. reacquired 5,000 of its no-par common shares at a price of $11 per share. It
subsequently resold the shares at $16 per share
Required:
Using the single-transaction method, record the above treasury share transactions.
[V. Roestel, London E18.4]

11) On January 1, 2021, Alarcon Inc. issued 20,000, $5 par value shares at $17 each. On June
30, 2021, 10,000 of the shares were reacquired at $19 each and subsequently cancelled.
Required:
Prepare the journal entries to record the issuance and re-acquisition of the above shares.
[V. Roestel, London E18.5]

12) Tanizaki Enterprises Ltd. reported the following share transactions during 2021, its first
year of operations:
January 15: Issued 150,000 no-par common shares at $25 each.
March 30: Reacquired and cancelled 10,000 shares at $20 each.
July 31: Issued 20,000 shares at $22 each.
October 31: Reacquired and cancelled 15,000 shares at $29 each.
Required:
Prepare the journal entries to record the above transactions.
[V. Roestel, London E18.6]
 13) On January 1, 2022, Belloc Limited, a toy manufacturer, had outstanding share capital of
100,000 common shares. During 2022, the following dividend transactions occurred:
May 5: A 10% share dividend was declared and distributed. On this date, the ex-dividend
price was $25 per share.
May 15: A cash dividend of $0.80 per share was declared for shareholders of record on
May 20, to be distributed on May 25.
May 25: The cash dividend was distributed.
May 27: In order to reduce some excess inventory levels, the company declared a property
dividend. Each share was to receive eight units of the Atomic Accountant action
figure. Due to declining sales levels, the inventory carrying amount had
previously been written down to its estimated realizable value of $0.75 per unit.
The record date for this dividend was May 30, and the distribution date was May 31.
May 31: The property dividend was distributed.
Required: Prepare all the journal entries necessary to record the above dividend transactions.
[V. Roestel, London E18.7]
14) Manguel Merchandising Ltd. reported the following amounts in the shareholders’ equity
section of its December 31, 2020, balance sheet:
Preferred shares, $1 cumulative dividend, $1,875,000
100,000 shares authorized, 75,000 issued
Common shares, unlimited shares authorized, 3,800,000
250,000 issued, 210,000 outstanding
Contributed surplus 58,000
Treasury shares (40,000 common shares) (440,000)
Retained earnings 4,260,000
Total shareholders’ equity $9,553,000
The contributed surplus arose from past re-acquisitions of common shares. On December 31,
2020, two years of preferred dividends were in arrears, that is, preferred dividends were not paid
in 2019 or 2020.
The following transactions occurred in 2021:
i January 15: 10,000 of the shares held in treasury were resold at a price of $13 per share.
ii February 28: 50,000 common shares were reacquired and immediately cancelled for total
cash proceeds of $705,000.
iii June 30: 25,000 preferred shares were reacquired & immediately cancelled at $31 per share.
iv December 31: A 5% share dividend was declared and distributed on the common shares.
The ex-dividend price of the share was $17. Preferred dividends were also declared and paid in
cash, as they needed to be declared before the common share dividend could be declared.
Required:
Prepare the journal entries to record 2021 equity transactions.
[V. Roestel, London E18.11]
 15) La Porte Limited has 100,000 common shares outstanding with an average issue price of
$16.25 per share.
On July 1, Y7, La Porte reacquired and cancelled 10,000 shares when the market price was
$23.40 per share.
There is a balance in contributed surplus of $42,670 which is a result from net excess of
proceeds over cost on a previous cancellation of common shares.
Required:
1. Prepare the journal entry to record this transaction if La Porte follows ASPE.
2. Prepare the journal entry assuming the balance in contributed surplus is $242,670 (La Porte
still follows IFRS).
3. Prepare the journal entry assuming the balance in contributed surplus is $0 (La Porte still
follows IFRS).
[V. Roestel, London E18.13]

16) Wilco Corporation has the following account balances at December 31, 2017.
Common stock, $5 par value $ 510,000
Treasury stock 90,000
Retained earnings 2,340,000
Paid-in capital in excess of par—common stock 1,320,000
Prepare Wilco’s December 31, 2017, stockholders’ equity section.
[Kieso, BE15-3]

17) Kathleen Battle Corporation was organized on January 1, 2017. It is authorized to issue
10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no-par
common stock with a stated value of $1 per share. The following stock transactions were
completed during the first year.
Jan. 10 Issued 80,000 shares of common stock for cash at $5 per share.
Mar. 1 Issued 5,000 shares of preferred stock for cash at $108 per share.
Apr. 1 Issued 24,000 shares of common stock for land. The asking price of the land was
$90,000; the fair value of the land was $80,000.
May 1 Issued 80,000 shares of common stock for cash at $7 per share.
Aug. 1 Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000
for services rendered in helping the company organize.
Sept. 1 Issued 10,000 shares of common stock for cash at $9 per share.
Nov. 1 Issued 1,000 shares of preferred stock for cash at $112 per share.
Instructions
Prepare the journal entries to record the above transactions.
[Kieso, E15-2]
 18) Twenty-five thousand shares reacquired by Elixir Corporation for $53 per share were
exchanged for undeveloped land that has an appraised value of $1,700,000. At the time of
the exchange, the common stock was trading at $62 per share on an organized exchange.
Instructions
Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock
was originally recorded using the cost method.
[Kieso, E15-3]
19) Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common
stock. During 2017, Lindsey Hunter took part in the following selected transactions
1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock
totaling $7,000.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a
national stock exchange at approximately $46 per share on the date of issuance.
3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were
issued in 2013 at $40 per share.
Instructions
(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.
(c) Prepare the journal entry to record item 3 using the cost method.
[Kieso, E15-6]
20) Pistons Inc. recently hired a new accountant with extensive experience in accounting for
partnerships. Because of the pressure of the new job, the accountant was unable to review
what he had learned earlier about corporation accounting. During the first month, he made
the following entries for the corporation’s capital stock.

Instructions
On the basis of the explanation for each entry, prepare the entries that should have been made
for the capital stock transactions.
[Kieso, E15-8]
 21) For a recent 2-year period, the balance sheet of Santana Dotson Company showed the
following stockholders’ equity data at December 31 (in millions).

Instructions
(a) What is the par value of the common stock?
(b) Prepare the stockholders’ equity section at December 31, 2017.
[Kieso, E15-10]

22) The stockholders’ equity accounts of G.K. Chesterton Company have the following
balances on December 31, 2017.
Common stock, $10 par,
300,000 shares issued and outstanding $3,000,000
Paid-in capital in excess of par—common stock 1,200,000
Retained earnings 5,600,000
Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at
$37.
Instructions
Prepare the appropriate journal entries for each of the following cases.
(a) A stock dividend of 5% is declared and issued.
(b) A stock dividend of 100% is declared and issued.
[Kieso, E15-14]

23) The following data were taken from the balance sheet accounts of Masefield Corporation
on December 31, 2016.
Current assets $540,000
Debt investments (trading) 624,000
Common stock (par value $10) 500,000
Paid-in capital in excess of par 150,000
Retained earnings 840,000
Instructions
Prepare the required journal entries for the following unrelated items.
(a) A 5% stock dividend is declared and distributed at a time when the market price per share is $39.
(b) The par value of the common stock is reduced to $2 with a 5-for-1 stock split.
[Kieso, E15-15]
 24) The following information has been taken from the ledger accounts of Isaac Stern
Corporation.
Total income since incorporation $317,000
Total cash dividends paid 60,000
Total value of stock dividends distributed 30,000
Gains on treasury stock transactions 18,000
Unamortized discount on bonds payable 32,000

Instructions
Determine the current balance of retained earnings.
[Kieso, E15-16]

25) Bruno Corporation’s post-closing trial balance at December 31, 2017, is shown as follows.

At December 31, 2017, Bruno had the following number of common and preferred shares.
Common Preferred
Authorized 600,000 60,000
Issued 200,000 10,000
Outstanding 190,000 10,000
The dividends on preferred stock are $4 cumulative. In addition, the preferred stock has a
preference in liquidation of $50 per share.
Instructions
Prepare the stockholders’ equity section of Bruno’s balance sheet at December 31, 2017.
[Kieso, E15-17]
 26) Presented below is information from the annual report of Emporia Plastics, Inc.

Instructions
Compute the return on common stockholders’ equity and the rate of interest paid on bonds.
(Assume balances for debt and equity accounts approximate averages for the year.)
[Kieso, E15-20]

27) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000
shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000
shares of $10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at $16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the following assets:
equipment with a fair value of $50,000; a factory building with a fair value of $160,000; and land
with an appraised value of $270,000.
July 29 Purchased 1,800 shares of common stock at $17 per share. (Use cost method.)
Aug. 10 Sold the 1,800 treasury shares at $14 per share.
Dec. 31 Declared a $0.25 per share cash dividend on the common stock and declared the
preferred dividend.
Dec. 31 Closed the Income Summary account. There was a $175,700 net income.
Instructions
(a) Record the journal entries for the transactions listed above.
(b) Prepare the stockholders’ equity section of Phelps Corporation’s balance sheet as of December
31, 2017.
[Kieso, P15-1]
 28) Clemson Company had the following stockholders’ equity as of January 1, 2017.

Instructions
Prepare the journal entries to record the treasury stock transactions in 2017, assuming Clemson
uses the cost method.
[Kieso, P15-2]

29) Hatch Company has two classes of capital stock outstanding: 8%, $20 par preferred and
$5 par common. At December 31, 2017, the following accounts were included in
stockholders’ equity.

Instructions
Prepare the stockholders’ equity section for Hatch Company at December 31, 2018. Show all
supporting computations.
[Kieso, P15-3]
 30) Washington Company has the following stockholders’ equity accounts at December 31,
2017.
Common Stock ($100 par value, authorized 8,000 shares) $480,000
Retained Earnings 294,000
Instructions
(a) Prepare entries in journal form to record the following transactions, which took place during
2018.
(1) 280 shares of outstanding stock were purchased at $97 per share. (These are to be
accounted for using the cost method.)
(2) A $20 per share cash dividend was declared.
(3) The dividend declared in (2) above was paid.
(4) The treasury shares purchased in (1) above were resold at $102 per share.
(5) 500 shares of outstanding stock were purchased at $105 per share.
(6) 350 of the shares purchased in (5) above were resold at $96 per share.
(b) Prepare the stockholders’ equity section of Washington Company’s balance sheet after giving
effect to these transactions, assuming that the net income for 2018 was $94,000. State law requires
restriction of retained earnings for the amount of treasury stock.
[Kieso, P15-6]

31) The books of Conchita Corporation carried the following account balances as of December
31, 2017.
Cash $ 195,000
Preferred Stock (6% cumulative, nonparticipating, $50 par) 300,000
Common Stock (no-par value, 300,000 shares issued) 1,500,000
Paid-in Capital in Excess of Par—Preferred Stock 150,000
Treasury Stock (common 2,800 shares at cost) 33,600
Retained Earnings 105,000
The company decided not to pay any dividends in 2017.
The board of directors, at their annual meeting on December 21, 2018, declared the following:
“The current year dividends shall be 6% on the preferred and $.30 per share on the common. The
dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of
declaration, the preferred is selling at $80 per share, and the common at $12 per share. Net income
for 2018 is estimated at $77,000.
Instructions
Prepare the journal entries required for the dividend declaration and payment, assuming that they
occur simultaneously.
[Kieso, P15-7]