Chapter 16, Problem 13P

1.

To determine

Ascertain the amount of prior period adjustments.

Explanation of Solution

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Ascertain the amount of prior period adjustments.

$\begin{array}{c}\text{Amount of prior period adjustments =}\left(\frac{\text{Patent capitalized}}{\left(\begin{array}{l}\text{Estimated life}\\ \text{ of the asset}\end{array}\right)}\times \text{Time period }\right)\times \left(\begin{array}{l}\text{1}-\text{Corporation }\\ \text{income tax}\end{array}\right)\\ =\left(\frac{\$320,000}{8}\times \frac{6}{12}\right)\times \left(1-30\%\right)\\ =\$14,000\end{array}$

2.

To determine

Calculate the amount of preferred dividend.

Explanation of Solution

Calculate the amount of preferred dividend.

$\begin{array}{c}\text{Amount of preferred dividend = Value of preferred stock }\times \left(\begin{array}{l}\text{Precent of }\\ \text{preferred dividend}\end{array}\right)\\ =\$200,000\times 6\%\\ =\$12,000\end{array}$

3.

To determine

Calculate the amount of common dividend (cash).

Explanation of Solution

Calculate the amount of common dividend (cash).

$\begin{array}{c}\begin{array}{l}\text{Amount of common }\\ \text{cash dividend}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Value of common stock+ Issue of common}\\ \text{stock on February 2, 2016}-\text{Purchase of}\\ \text{own common stock on March 2, 2016}\\ \text{+Treasury stock reissued }\end{array}\right)\times \left(\begin{array}{l}\text{Cash dividend}\\ \text{ per share}\end{array}\right)\\ \text{=}\left(\text{100,000+13,000}-\text{5,000+}2,000\right)\times \$1.50\\ =\$165,000\end{array}$

4.

To determine

Calculate the amount of common dividend (property).

Explanation of Solution

An amount of $720,000 (fair value) is declared as a common dividend on property.

5.

To determine

Ascertain the number of common shares issued at December 31, 2016.

Explanation of Solution

Ascertain the number of common shares issued at December 31, 2016.

$\begin{array}{c}\begin{array}{l}\text{Number of common shares }\\ \text{issued at December 31, 2016}\end{array}\}\text{= }\left(\begin{array}{l}\text{Opening balance of common }\\ \text{shareholder's equity on}\\ \text{ December 31, 2015}\end{array}\right)+\left(\begin{array}{l}\text{Shares issued on }\\ \text{Febraury 2, 2016}\end{array}\right)\\ =100,000+13,000\\ =113,000\end{array}$

6.

To determine

Ascertain the total legal capital of common stock issued.

Explanation of Solution

Ascertain the total legal capital of common stock issued.

$\begin{array}{c}\begin{array}{l}\text{Total legal capital of}\\ \text{ common stock issued }\end{array}\}\text{=}\left(\begin{array}{l}\text{Number of common shares }\\ \text{issued at December 31, 2016}\end{array}\right)\times \text{Par value}\\ =113,000\times \$1\\ =\$113,000\end{array}$

7.

To determine

Compute the additional paid-in capital, including treasury stock transactions.

Explanation of Solution

Compute the additional paid-in capital, including treasury stock transactions.

$\begin{array}{c}\begin{array}{l}\text{Additional paid-in }\\ \text{capital}\end{array}\}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Value of additonal }\\ \text{paid -in capital}\end{array}\right)\text{+}\\ \left(\begin{array}{l}\left(\begin{array}{l}\text{Shares issued on }\\ \text{February 2, 2016}\end{array}\right)\text{×}\\ \left(\begin{array}{l}\text{Market price}-\\ \text{Par value}\end{array}\right)\end{array}\right)\end{array}\right]\text{+}\left(\left(\begin{array}{l}\text{Reissue of}\\ \text{treasury }\\ \text{stock}\end{array}\right)\text{×}\left[\begin{array}{l}\text{Price per share of }\\ \text{reissued treasury}\\ \text{ stock}-\text{Per share}\\ \text{ value of treasury}\\ \text{ stock}\end{array}\right]\right)\\ =\left[\$800,000+\left(13,000\times \left(\$11-\$1\right)\right)\right]+\left[2,000\times \left(\$16-\$14\right)\right]\\ =\$930,000+\$4,000\\ =\$934,000\end{array}$

8.

To determine

Compute the total amount of treasury stock.

Explanation of Solution

Compute the total amount of treasury stock.

$\begin{array}{c}\text{Total amount of treasury stock= }\left(\begin{array}{l}\text{Shares purchased held }\\ \text{in treasury stock }-\text{Reissue }\\ \text{of treasury stock}\end{array}\right)\times \left(\begin{array}{l}\text{Per value of }\\ \text{treasury stock}\end{array}\right)\\ =\left(5,000-2,000\right)\times \$14\\ =\$42,000\end{array}$

9.

To determine

Ascertain the numerator used in computing the earnings per share.

Explanation of Solution

An amount of $826,000 $\left[\$838,000-\$12,000\right]$  is used a number for computing earnings per share.