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.

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

2.

To determine

Calculate the amount of preferred dividend.

Explanation of Solution

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

3.

To determine

Calculate the amount of common dividend (cash).

Explanation of Solution

$\begin{array}{c}\begin{array}{l}\text{Amount of common }\\ \text{cash dividend}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Value of common stock+ Issue of common}\\ \text{stock on February 2, 2019}-\text{Purchase of}\\ \text{own common stock on March 2, 2019}\\ \text{+Treasury stock reissued }\end{array}\right)\times \left(\begin{array}{l}\text{Cash dividend}\\ \text{ per share}\end{array}\right)\\ \text{=}\left(\text{100,000+13,000}-\text{5,000+}2,000\right)\times \$1.50\\ =\$165,000\end{array}$

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, 2019.

Explanation of Solution

$\begin{array}{c}\begin{array}{l}\text{Number of common shares }\\ \text{issued at December 31, 2019}\end{array}\}\text{= }\left(\begin{array}{l}\text{Opening balance of common }\\ \text{shareholder's equity on}\\ \text{ December 31, 2018}\end{array}\right)+\left(\begin{array}{l}\text{Shares issued on }\\ \text{Febraury 2, 2019}\end{array}\right)\\ =100,000+13,000\\ =113,000\end{array}$

6.

To determine

Ascertain the total legal capital of common stock issued.

Explanation of Solution

$\begin{array}{c}\begin{array}{l}\text{Total legal capital of}\\ \text{ common stock issued }\end{array}\}\text{=}\left(\begin{array}{l}\text{Number of common shares }\\ \text{issued at December 31, 2019}\end{array}\right)\times \text{Par value}\\ =113,000\times \$1\\ =\$113,000\end{array}$

7.

To determine

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

Explanation of Solution

$\begin{array}{c}\begin{array}{l}\text{Additional paid-in }\\ \text{capital}\end{array}\}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Value of additonal }\\ \text{paid -in capital}\end{array}\right)\text{+}\\ \left(\begin{array}{l}\left(\begin{array}{l}\text{Shares issued on }\\ \text{February 2, 2019}\end{array}\right)\text{×}\\ \left(\begin{array}{l}\text{Market price}-\\ \text{Par value}\end{array}\right)\end{array}\right)\end{array}\right]\text{+}\left(\left(\begin{array}{l}\text{Reissue of}\\ \text{treasury }\\ \text{stock}\end{array}\right)\text{×}\left[\begin{array}{l}\text{Price per share of }\\ \text{reissued treasury}\\ \text{ stock}-\text{Per share}\\ \text{ value of treasury}\\ \text{ stock}\end{array}\right]\right)\\ =\left[\$800,000+\left(13,000\times \left(\$11-\$1\right)\right)\right]+\left[2,000\times \left(\$16-\$14\right)\right]\\ =\$930,000+\$4,000\\ =\$934,000\end{array}$

8.

To determine

Compute the total amount of treasury stock.

Explanation of Solution

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

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.