BUS103: Introduction to Financial Accounting

Solution to demonstration problem A

VIOLET COMPANY
		Assumptions
Year	Dividends to	a	b
2005	Preferred	$30,000*	$30,000
	Common	55,000	55,000
2006	Preferred	30,000	30,000
	Common	22,500	22,500
2007	Preferred	7,500	7,500
	Common	-0-	-0-
2008	Preferred	15,000	15,000
	Common	-0-	-0-
2009	Preferred	67,500†	30,000‡
	Common	-0-	37,500

* 4,000 shares X $125 X 0.06 = $30,000
† $30,000 + $22,500 preferred dividend missed in 2007 + $15,000 preferred dividend missed in 2008.
‡ Only the basic $30,000 dividend is paid because the stock is noncumulative.

Solution to demonstration problem B

a. (1)

Cash (+A)	1,200,000
Common Stock (+SE)		300,000
Paid-In Capital in Excess of Par Value – Common Stock (+SE)		900,000
To record issuance of 50,000 shares at $24 per share.

(2)

Cash (+A)	13,500
Preferred Stock (+SE)		9,000
Paid-In Capital in Excess of Par Value  – Preferred (+SE)		4,500
To record the issuance of 750 shares for cash, at $18 per share.

(3)

Organization Costs (+A)	9,000
Common Stock (+SE)		6,000
Paid-In Capital in Excess of Par Value – Common (+SE)		3,000
To record the issuance of 1,000 shares in exchange for legal services.

b.

TERRIER COMPANY
Partial Balance Sheet
2009 June 30

Paid-in Capital:
Preferred stock – $12 par value, 14% cumulative; 1,000shares authorized; issued and outstanding, 750 shares	$ 9,000
Common stock – $6 par value per share; 100,000 shares authorized; issued and outstanding, 51,000 shares	306,000	$ 315,000
Paid-in capital in excess of par value:
From preferred stock issuances	$ 4,500
From common stock issuances	903,000	907,500
Total paid-in capital		$1,222,500