CHAPTER 18
INTERMEDIATE ACCOUNTING II
ACCT 3021
QUESTION 1
The shareholders’ equity of Kramer Industries includes the data shown below. During 2017, cash dividends of $240 million
were declared. Dividends were not declared in 2015 or 2016.
($ in millions)
Common stock
Paid-in capital—excess of par,
common
Preferred stock, 11%,
nonparticipating
Paid-in capital—excess of par,
preferred $ 380
1,140
200
460 Required:
Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the
following two assumptions regarding the characteristics of the preferred stock. (Enter your answers in millions (i.e.,
10,000,000 should be entered as 10).)
Assumption A — The preferred stock is noncumulative.
Assumption B — The preferred stock is cumulative. QUESTION 2
PART A
During its first year of operations, the McCollum Corporation entered into the following transactions relating to
shareholders’ equity. The corporation was authorized to issue 170 million common shares, $1 par per share.
Required:
Prepare the appropriate journal entries to record each transaction. (If no entry is required for a transaction/event,
select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
Jan. 9 Issued 80 million common shares for $25 per share.
Mar.Issued 5,700 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the
11 stock exchange at $25 per share.
a. Record the issue of 80 million common shares for $25 per share.
b. Record the issue of 5,700 shares in exchange for custom-made equipment. McCollum’s
shares have traded recently on the stock exchange at $25 per share.
PART B
A new staff accountant for the McCollum Corporation recorded the following journal entries during the second year of
operations. McCollum retires shares that it reacquires (restores their status to that of authorized but unissued shares)..
Date
Jan. 12 General Journal
Land
Paid-in capital—donation of
land ($ in millions)
Debit
Credit
3
3 Sept. 1 Dec. 1 Common stock
Retained earnings
Cash 4
116
120 Cash
Common stock
Gain on sale of previously
issued shares 62
2
60 Required:
Prepare the journal entries that should have been recorded for each of the transactions. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions
(i.e., 10,000,000 should be entered as 10).)
a. Record the donation of land.
b. Record the stock transaction occurring on Sept. 1.
c. Record the stock transaction occurring on Dec. 1. QUESTION 3
Comparative statements of retained earnings for Renn-Dever
Corporation were reported in its 2016 annual report as follows.
RENN-DEVER CORPORATION
Statements of Retained Earnings
For
the
Year
s
Ende
d
Dece
mber
31,
Bal
ance
at
begi
nnin
g of
year
Net
inco
me
(loss
)
Ded
uctio
ns:
St
ock
divid
end
(32,0
00
shar
es)
C
omm 2016 $ 6,825,
452 3,288,
700 2015 $ 5,568,
552 2,180,
900 224,0
00 216,0
00 2014 $ 5,724,
552 (156,0
)
00 on
shar
es
retire
d
(108,
000
shar
es)
C
omm
on
stock
cash
divid
ends
Bal
ance
at
end
of
year 849,9
50 $ 9,040,
202 708,0
00 $ 6,825,
452 0 $ 5,568,
552 At December 31, 2013, common shares consisted of the following: Common stock,
$ 1,760,000
1,760,000 shares at $1 par
Paid-in capital—excess of
12,320,000
par Required:
Infer from the reports the events and transactions that affected Renn-Dever Corporation’s retained earnings during
2014, 2015, and 2016. Prepare the journal entries that reflect those events and transactions. (If no entry is
required for a transaction/event, select "No journal entry required" in the first account field.)
a. Record transfer of net loss to retained earnings.
b. Record transfer of net income to retained earnings.
c. Record repurchase of shares for retirement.
d. Record declaration of cash dividend
e. Record payment of cash dividend.
f. Record transfer of net loss to retained earnings.
g. Record issue of stock dividend.
h. Record declaration of cash dividend.
i. Record payment of cash dividend QUESTION 4
Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the
period 2016–2018. At December 31, 2015, the corporation’s accounts included: Common stock, 105 million ($ in
000s)
$105,000 shares at $1 par
Paid-in capital—excess of par 624,000
Retained earnings
840,000 a.November 1, 2016, the board of directors declared a cash dividend of $0.60 per share on its common shares,
payable to shareholders of record November 15, to be paid December 1.
b.On March 1, 2017, 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 $1.9 million, but were
purchased two years previously for $1.7 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, 2017, the corporation declared and distributed a 5% common stock dividend (when the market value
of the common stock was $23 per share). Cash was paid in lieu of fractional shares representing 250,000
equivalent whole shares.
d.On November 1, 2017, the board of directors declared a cash dividend of $0.60 per share on its common shares,
payable to shareholders of record November 15, to be paid December 1.
e.On January 15, 2018, 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 $24 per share.
f. On November 1, 2018, the board of directors declared a cash dividend of $0.45 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. (If no
entry is required for a transaction/event, select "No journal entry required" in the first account field.
Enter your answers in whole dollars.)
a. Record declaration of cash dividend. ( nov 1 2016)
b. Record the entry on date of record. ( nov 15 2016)
c. Record payment of cash dividend.
(Dec 1 2016)
d. Record appreciation of investment
(march 1 2017)
e. Record declaration of property dividends. ( march 1 2017)
f. Record the entry on date of record.
( march 13 2017)
g. Record distribution of property dividends. (April 5 2017)
h. Record declaration and distribution of stock dividend and settlement of fractional shares.
( july 12 2017)
i. Record declaration of cash dividend. (Nov 1 2017)
j. Record the entry on date of record ( Nov 15 2017)
k. Record payment of cash dividend. ( Dec 1 2017)
l. Record declaration and distribution of stock split effected in the form of stock dividend.
(jan 15 2018)
m. Record declaration of cash dividend (nov 1 2018)
n. Record the entry on the date of record. (Nov 15 2018)
o. Record payment of cash dividend. (Dec 1 2018) 2.Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period. Net income
was $355 million, $420 million, and $480 million for 2016, 2017, and 2018, respectively. (Negative amounts
should be indicated by a minus sign. Enter your answers in thousands (000's).) BRANCH – RICKIE CORPORATION
STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DEC 31 2016, 2017, AND 2018 JAN 1 2016
NET INCOME
CASH DIVIDENDS
DEC 31 2016
PROPERTY DIVIDENDS
COMMON STOCK DIVIDEND
NET INCOME
CASH DIVIDENDS
DEC 31 2017
3 – FOR -2 SPLIT EFFECTED IN
THE FORM OF A STOCK
DIVIDEND
NET INCOME
CASH DIVIDENDS
DEC 31 2018 COMMON
STOCK ADDITIONAL
PAID –IN CAPITAL RETAINED
EARNINGS TOTAL
SHAREHOLDERS
EQUITY 0 0 0 0 0 0 0 0 $0 $0 $0 $0

 

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