Chapter 18

Shareholders

Equity

EXERCISE
S
Exercise 18-1

February 13
Cash (60 million shares x $10 per share).............................
Common stock (60 million shares x $1 par)...................
Paid-in capital excess of par (difference)....................

February 14
Legal expenses (1 million shares x $10 per share)..............
Common stock (1 million shares x $1 par)....................
Paid-in capital excess of par (difference)....................

600
60
540

10
1
9

Note: Because 60 million shares sold the previous day for $10 per share, its reasonable to
assume a $10 per share fair value.

February 14
Cash..............................................................................
Common stock (3 million shares x $1 par) ...................
Paid-in capital excess of par, common*................
Preferred stock (1 million shares x $50 par)..................
Paid-in capital excess of par, preferred**.............

90
3
27
50
10

* 3 million shares x [$10 market value - $1 par].

** Since the value of the common shares is known ($30 million), the market value of the
preferred ($60 million) is assumed from the total selling price ($90 million).

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

18-1

November 16
Property, plant, and equipment (cash value)...................
Common stock (190,000 shares at $1 par per share).......
Paid-in capital excess of par (difference).................

Exercise 18-2

1,844,000
190,000
1,654,000

1. January 8, 2011
($ in millions)

Common stock (8 million shares x $1 par)...................................

Paid-in capital excess of par (8 million shares x $3*).................

Retained earnings (difference)..................................................
Cash (8 million shares x $6 per share).......................................

24
16
48

* Paid-in capital excess of par: $1,200 400 million shares

2. August 24, 2011

Common stock (16 million shares x $1 par).................................
Paid-in capital excess of par (16 million shares x $3).................
Paid-in capital reacquired shares (difference)....................
Cash (16 million shares x $3.50 per share).................................

3. July 26, 2012

Cash (12 million shares x $7 per share).........................................
Common stock (12 million shares x $1 par).............................
Paid-in capital excess of par (difference)................................

The McGraw-Hill Companies, Inc., 2011

18-2

16
48
8
56

84
12
72

Intermediate Accounting, 6e

Exercise 18-3Requirement 1
a. February 20 declaration date

Investment in Brown International stock ..........................

Gain on appreciation of investment ($500,000 - $485,000)

15,000

Retained earnings (100,000 shares at $5 per share)....................

Property dividends payable ..........................................

500,000

15,000

500,000

February 28 date of record

no entry
March 20 payment date
Property dividends payable ..............................................
Investment in Brown International stock ......................

500,000
500,000

b. April 4
Paid-in capital excess of par, common*.........................
Common stock (25% x [728,000 - 8,000] shares at $1 par) ...

180,000
180,000

*alternatively, retained earnings may be debited.

c. July 25
Retained earnings (27,000* x $12 per share)..............................
Common stock (27,000* x $1 par) ...................................
Paid-in capital excess of par, common (difference)......

324,000
27,000
297,000

* 3% x [728,000 - 8,000 + 180,000 shares] = 27,000 additional shares

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

18-3

Exercise 18-3 (concluded) d. December 2 declaration date

Retained earnings..............................................................
Cash dividends payable ($100,000 par x 7.6%) ................

7,600
7,600

December 19 date of record

no entry
December 27 payment date
Cash dividends payable ....................................................
Cash ..............................................................................

7,600
7,600

e. December 2 declaration date

Retained earnings..............................................................
Cash dividends payable (927,000* x $.50) ......................

463,500
463,500

* 728,000 - 8,000 + 180,000 + 27,000 = 927,000 shares

December 19 date of record

no entry
December 27 payment date
Cash dividends payable ....................................................
Cash ..............................................................................

The McGraw-Hill Companies, Inc., 2011

18-4

463,500
463,500

Intermediate Accounting, 6e

Requirement 2
Paid-in capital:
Preferred stock, 7.6%, 100,000 shares at $1 par............
Common stock, 927,0001 shares at $1 par ...................
Paid-in capital excess of par, preferred......................
Paid-in capital excess of par, common.......................

100,000
927,000
2,900,000
5,265,000 2

Retained earnings............................................

9,404,900 3

Treasury stock, at cost; 8,000 common shares .............

Total shareholders equity............................................

(88,000)
$18,508,900

1 728,000 - 8,000 + 180,000 + 27,000 = 927,000 shares

2 $5,148,000 - 180,000 + 297,000 = $5,265,000
3 $9,800,000 - 500,000 - 324,000 - 7,600 - 463,500 + 900,000 = $9,404,900

PROBLEM
S

Problem 18-1Requirement 1
a. March 6, 2011
($ in millions)

Retirement

Common stock (3 million sh. x $1)

Paid-in capital excess of par
30
(3 million shares x $7*)

Paid-in capital reacquired shares

Retained earnings (plug)
Cash
* Paid-in

capital excess of par:

Alternate Exercise and Problem Solutions

Treasury Stock

Treasury stock (3 million sh. x $10) 30

Cash

21
1
5
30
$560 80
The McGraw-Hill Companies, Inc., 2011
18-5

b. September 3, 2011
Cash (1 million sh. x $11)
Common stock (1 million sh. x $1)
10
Paid-in capital excess of par
1

11

Cash (1 million sh. x $11)

11
1
Treasury stock (1 million sh. x $10)
10

Paid-in capital reacquired sh.

c. October 12, 2013

Cash
Common stock (1 million sh. x $1)
Paid-in capital excess of par

Cash
4
1 Paid-in cap.- reacquired sh.(1 + 1 ) 2
3 Retained earnings (plug)
4
Treasury stock (1 million sh. x $10)

10

Problem 18-1 (concluded)

Requirement 2
Shareholders Equity

$ in millions

Retired
Stock

The McGraw-Hill Companies, Inc., 2011

18-6

Treasury
Stock

Intermediate Accounting, 6e

Paid-in capital:
Common stock, at $1 par, ..............................................
Paid-in capital excess of par .......................................
Paid-in capital reacquired shares.................................

$ 79
561 *
0

Retained earnings.........................................................

339 **

Less: treasury stock, 1 million shares (at cost)...........

Total shareholders equity.............................................

$ 80
560
0
349 ***

$979

(10)
$979

$ 79
561 *

$ 80
560

* 560 - 21 + 10 + 12
** 350 - 11
*** 350 - 1
or, alternatively:
Paid-in capital:
Common stock, at $1 par, ..............................................
Additional paid-in capital...............................................
Retained earnings.........................................................
Less: treasury stock, 1 million shares (at cost)...........
Total shareholders equity.............................................

339 **

$979

349 ***
(10)
$979

* 560 - 21 + 10 + 12
** 350 - 11
*** 350 - 1

Problem 18-2Requirement 1
a. November 2 declaration date

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

18-7

Retained earnings......................................................... 252,000,000

Cash dividends payable (315 million shares at $.80/share)
252,000,000
November 16 date of record
no entry
December 2 payment date
Cash dividends payable ............................................... 252,000,000
Cash .........................................................................
252,000,000

b. March 3 declaration date

Investment in bonds......................................................
Gain on appreciation of investment
($4.8 million 3.9 million..........................................

900,000

Retained earnings ........................................................

Property dividends payable ....................................

4,800,000

900,000

4,800,000

March 14 date of record

no entry
April 6 payment date
Property dividends payable .........................................
Investment in bonds .................................................

The McGraw-Hill Companies, Inc., 2011

18-8

4,800,000
4,800,000

Intermediate Accounting, 6e

c. July 13
Retained earnings (15,750,000* x $21 per share)............
Common stock ([15,750,000* 750,000] x $1 par) ...
Paid-in capital excess of par
([15,750,000* 750,000] x $20 per share)................
Cash (750,000 shares at $21 market price per share).....
* 5% x 315,000,000 shares = 15,750,000 additional shares
Problem 18-2 (continued)

330,750,000
15,000,000
300,000,000
15,750,000

d. November 2 declaration date

Retained earnings......................................................... 264,000,000

Cash dividends payable (330,000,000* x $.80)..............
264,000,000
* 315,000,000 + 15,000,000 = 330,000,000 shares
November 16 date of record
no entry
December 2 payment date
Cash dividends payable ............................................... 264,000,000
Cash .........................................................................
264,000,000
e. January 16
Paid-in capital excess of par...................................... 165,000,000
Common stock (165,000,000* shares at $1 par) ............
165,000,000

* 330,000,000 shares x 50% = 165,000,000 shares

Alternate Exercise and Problem Solutions

The McGraw-Hill Companies, Inc., 2011

18-9

f. November 2 declaration date

Retained earnings......................................................... 321,750,000
Cash dividends payable (495,000,000 * x $.65).............
321,750,000
* 315,000,000 + 15,000,000 + 165,000,000 = 495,000,000 shares
November 16 date of record
no entry
December 2 payment date
Cash dividends payable ............................................... 321,750,000
Cash .........................................................................
321,750,000

The McGraw-Hill Companies, Inc., 2011

18-10

Intermediate Accounting, 6e

Problem 18-2 (concluded) Requirement 2

BLT Corporation
Statement of Shareholders Equity
For the Years Ended Dec. 31, 2011, 2012, and 2013 ($ in 000s)

Jan. 1, 2011
Net income
Cash dividends
Dec. 31, 2011
Property
dividends
Common stock
dividend
Net income
Cash dividends
Dec. 31, 2012
3 for 2 split
effected in the
form of a stock
dividend
Net income
Cash dividends
Dec. 31, 2013

Common
Stock

Additional
Paid-in Capital

Retained
Earnings

Total
Shareholders
Equity

315,000

1,890,000

2,910,000

5,115,000

1,890,000

990,000
(252,000)
3,648,000

990,000
(252,000)
5,853,000

(4,800)

(4,800)

300,000

(330,750)

(15,750)

2,190,000

1,185,000
(264,000)
4,233,450

1,185,000
(264,000)
6,753,450

1,365,000
(321,750)
5,276,700

1,365,000
(321,750)
7,796,700

315,000

15,000

330,000

165,000

495,000

Alternate Exercise and Problem Solutions

(165,000)

2,025,000

The McGraw-Hill Companies, Inc., 2011

18-11