Chapter Review
13-9gProblems: Series A
Dividends on Preferred and Common Stock
OBJ. 3
Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $80,000; Year 2, $90,000; Year 3, $150,000; Year 4, $150,000; Year 5, $160,000; and Year 6, $180,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 250,000 shares of cumulative, preferred 2% stock, $20 par, and 500,000 shares of common stock, $15 par.
Instructions
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Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form, using the following column headings:
Year
Total Dividends
Preferred Dividends
Common Dividends
Total
Per Share
Total
Per Share
Year 1
$ 80,000
Year 2
90,000
Year 3
150,000
Year 4
150,000
Year 5
160,000
Year 6
180,000
AnswerCheck figure: Year 3, Preferred Dividends, $130,000
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Determine the average annual dividend per share for each class of stock for the six-year period.
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Assuming a market price per share of $25.00 for the preferred stock and $17.50 for the common stock, determine the average annual percentage return on initial shareholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
Stock Transactions for Corporate Expansion
OBJ. 3
On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor:
Preferred 2% Stock, $50 par (250,000 shares authorized, 80,000 shares issued) |
$ 4,000,000 |
Paid-In Capital in Excess of Par—Preferred Stock |
560,000 |
Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) |
14,000,000 |
Paid-In Capital in Excess of Par—Common Stock |
1,200,000 |
Retained Earnings |
180,000,000 |
At the annual stockholders’ meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000. The plan provided (a) that a building, valued at $3,375,000, and the land on which it is located, valued at $1,500,000, be acquired in accordance with preliminary negotiations by the issuance of 125,000 shares of common stock valued at $39 per share, (b) that 40,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $4,000,000. The plan was approved by the stockholders and accomplished by the following transactions:
May 11. |
Issued 125,000 shares of common stock in exchange for land and a building, according to the plan. |
20. |
Issued 40,000 shares of preferred stock, receiving $52 per share in cash. |
31. |
Borrowed $4,000,000 from Laurel National, giving a 5% mortgage note. |
Instructions
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Journalize the entries to record the May transactions.
Selected Stock Transactions
OBJ. 3, 4, 6
The following selected accounts appear in the ledger of Upscale Construction Inc. at the beginning of the current year:
Preferred 2% Stock, $80 par (200,000 shares authorized, 65,000 shares issued) |
$ 5,200,000 |
Paid-In Capital in Excess of Par—Preferred Stock |
360,000 |
Common Stock, $12 par (3,000,000 shares authorized, 1,400,000 shares issued) |
16,800,000 |
Paid-In Capital in Excess of Par—Common Stock |
1,290,000 |
Retained Earnings |
110,900,000 |
During the year, the corporation completed a number of transactions affecting the stockholders’ equity. They are summarized as follows:
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Issued 220,000 shares of common stock at $15, receiving cash.
-
Issued 6,000 shares of preferred 2% stock at $94.
-
Purchased 130,000 shares of treasury common for $19 per share.
-
Sold 70,000 shares of treasury common for $23 per share.
-
Sold 40,000 shares of treasury common for $17 per share.
-
Declared cash dividends of $1.60 per share on preferred stock and $0.14 per share on common stock.
-
Paid the cash dividends.
Instructions
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Journalize the entries to record the transactions. Identify each entry by letter.
AnswerCheck figure: f. Cash dividends, $337,600
Entries for Selected Corporate Transactions
OBJ. 3, 4, 5, 7
Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows:
Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) |
$ 7,500,000 |
Paid-In Capital in Excess of Stated Value—Common Stock |
825,000 |
Retained Earnings |
33,600,000 |
Treasury Stock (25,000 shares, at a cost of $18 per share) |
450,000 |
The following selected transactions occurred during the year:
Jan. 22. |
Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000. |
Apr. 10. |
Issued 75,000 shares of common stock for $24 per share. |
June 6. |
Sold all of the treasury stock for $26 per share. |
July 5. |
Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share. |
Aug. 15. |
Issued the certificates for the dividend declared on July 5. |
Nov. 23. |
Purchased 30,000 shares of treasury stock for $19 per share. |
Dec. 28. |
Declared a $0.10-per-share dividend on common stock. |
31. |
Closed the two dividends accounts to Retained Earnings. |
Instructions
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Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends.
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Journalize the entries to record the transactions and post to the eight selected accounts.
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Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises had net income for the year ended December 31, 20Y5, of $1,125,000.
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Prepare the Stockholders’ Equity section of the December 31, 20Y5, balance sheet using Method 1 of Exhibit 8.
AnswerCheck figure:Total stockholders’ equity, $44,436,200
Entries for Selected Corporate Transactions
OBJ. 3, 4, 5, 6
Selected transactions completed by ATV Discount Corporation during the current fiscal year are as follows:
Jan. |
5. |
Split the common stock 4 for 1 and reduced the par from $20 to $5 per share. After the split, there were 4,000,000 common shares outstanding. |
Mar. |
10. |
Purchased 100,000 shares of the corporation’s own common stock at $30, recording the stock at cost. |
Apr. |
30. |
Declared semiannual dividends of $0.25 on 30,000 shares of preferred stock and $0.08 on the common stock to stockholders of record on May 15, payable on June 15. |
June |
15. |
Paid the cash dividends. |
Aug. |
20. |
Sold 60,000 shares of treasury stock at $40, receiving cash. |
Oct. |
15. |
Declared semiannual dividends of $0.25 on the preferred stock and $0.08 on the common stock (before the stock dividend). In addition, a 1% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $35. The dividend date of record is November 15 payable on December 19. |
Dec. |
19. |
Paid the cash dividends and issued the certificates for the common stock dividend. |
Instructions
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Journalize the transactions.
AnswerCheck figure: Oct. 15, Cash dividends, $324,300