Problem
As of March 11, 2013, Swanson Group, Ltd. had 300,000 shares of $10 par value common stock authorized, and 185,000 shares issued. There were 6,000 shares of treasury stock that had been purchased by the firm at an average cost of $12. The market value of the stock on March 11, 2013 was $22.
a. How many shares of common stock are outstanding on March 11, 2013?
b. Assume that on March 11, 2013, the board of directors declared a cash dividend of $0.15 per share, payable on April 4, 2013, to stockholders of record on March 11, 2013. What is the amount of the dividend payable that would appear on the March 31, 2013, balance sheet?
c. Assume that instead of a cash dividend, the board of directors declared a 4% stock dividend. Calculate the amount of retained earnings that would be capitalized as a result of the stock dividend.
d. Assume that instead of either the cash dividend or the stock dividend, the board of directors approve a 2-for-1 stock split. How many shares of stock will be outstanding after the stock split?
e. If you were a stockholder of the Swanson Group, Ltd., which would you prefer-a cash dividend, a stock dividend, or a stock split? Explain your answer.
f. Assume that the cash dividend was declared, and that neither the stock dividend nor the stock split had occurred. Assume that 4,000 shares of the treasury stock were sold by the Swanson Group, Ltd. on March 17, 2013, at a price of $ 24 per share. Record the journal entry required for the sale (or show the effect of the sale in the horizontal model).
g. Assume that Swanson's retained earnings at February 28, 2013, totaled $2,285,000, and at March 31, 2013, retained earnings were $2,320,000. Assume also that the cash dividend of part b above was declared. Calculate Swanson's net income or loss for March.