Acc306 Intermediate Accounting: Week 4 (E18-18, E18-24, P18-5, E19-2, E19-5, E19-9, E19-24)

Acc306 Intermediate Accounting
Week 4 Assignment (E18-18, E18-24, P18-5, E19-2, E19-5, E19-9, E19-24)

E18–18 Transactions affecting retained earnings
Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2011. At January 1, 2011, the corporation had outstanding 105 million common shares, $1 par per share.
Retained Earnings ($ in millions)
Retirement of 5million common shares for $22million 2 Beg Bal 90
Declaration and payment of a $0.33 per share cash dividend 33 Net income 88
Declaration and distribution of a 4% stock dividend 20
End Bal $123

Required:
1. From the information provided by the account changes you should be able to recreate the transactions that affected Brenner-Jude’s retained earnings during 2011. Prepare the journal entries thatBrenner-Jude must have recorded during the year for these transactions.
2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2011.
E18–24 Profitability ratio
Comparative balance sheets for Softech Canvas Goods for 2011 and 2010 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.
Comparative Balance Sheets ($ in 000s)
December 31
2011 2010
Assets:
Cash 50 40
Accounts Receivable 100 120
Short-term receivable 50 40
Inventory 200 140
Property, plant and equipment (net) 600 550
Total Assets $1,000 $890
Liabilities and Shareholders' eQuity:
Current Liabilities 240 210
Bonds Payable 160 160
Paid-in Capital 400 400
Retained Earnings 200 120
$1,000 $890

Required:
1.Determine the return on shareholders’ equity for 2011.
2. What does the ratio measure?

E19–2 Restricted stock award plan
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.

Required:
1.Determine the total compensation cost pertaining to the restricted shares.
2.Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3.Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4.Prepare the appropriate journal entry to record compensation expense on December 31, 2012. 5.Prepare the appropriate journal entry to record compensation expense on December 31, 2013. 6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.

E19–5 Stock options
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.

Required:
1.Determine the total compensation cost pertaining to the options.
2.Prepare the appropriate journal entry to record the award of options on January 1, 2011.
3.Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4.Prepare the appropriate journal entry to record compensation expense on December 31, 2012.

E19–9 Employee share purchase plan
In order to encourage employee ownership of the company’s $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share.

Required:
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan

E19–24 EPS; concepts; terminology
Listed below are several terms and phrases associated with earnings per share. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.
List A List B
1. Subtract preferred dividends a. Options exercised
2. Time-weighted by 5/12 b. Simple capital structure
3. Time-weighted shares assumed issued plus time-weighted actual shares c. Basic EPS
4. Midyear event treated as if it occurred at the beginning of the reporting period d. Convertible preferred stock
5. Preferred dividends do not reduce earnings e. Earnings available to common shareholders
6. Single EPS presentation f. Antidilutive
7. Stock split g. Increased marketability
8. Potential common shares h. Extraordinary items
9. Exercise price exceeds market price i. Stock dividend
10. No dilution assumed j. Add after-tax interest to numerator
11. Convertible bonds k. Diluted EPS
12. Contingently issuable shares l. Noncumulative, undeclared preferred dividends.
13. Maximum potential dilution m. Common shares retired at the beginning of August
14. Per share amounts for net income and for income from continuing operations n. Include in diluted EPS when conditions of issuance are met

P18–5 Shareholders’ equity transactions; statement of shareholders’ equity
Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2011–2013. At December 31, 2010, the corporation’s accounts included:
$ in 000s
Common stock, 105 million shares at $1 par 105,000
Paid-in capital in excess of par 630,000
Retained earnings 970,000
a.November 1, 2011, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
b.On March 1, 2012, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.6 million, but were purchased two years previously for $1.3 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
c.On July 12, 2012, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $21 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.
d.On November 1, 2012, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
e.On January 15, 2013, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $22 per share.
f.On November 1, 2013, the board of directors declared a cash dividend of $.65 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
Required:
1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.
2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $330 million, $395 million, and $455 million for 2011, 2012, and 2013, respectively.
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