Problem 1: Analysis of changes in stockholders' equity accounts. The equity sections from Salazar Group's 2011 and 2012 year-end balance sheets follow.
Stockholder's Equity (December 31, 2011)
Common stock -$4 par value, 50,000 shares
authorized, 20,000 shares issued and outstanding $ 80,000
Paid in capital in excess of par value, common stock 60,000
Retained earnings 160,000
Total stockholder's equity $300,000
Stockholder's Equity (december 31, 2012)
Common stock -$4 par value, 50,000 shares
authorized, 23,700 shares issued, 1500 shares in treasury $ 94,800
Paid in capital in excess of par value, common stock 89,600
Retained earnings ($15,000 restricted by treasury stock 200,000
384,400
Less cost of treasury stock 15,000
Total stockholder's equity $369,400
The following transactions and events affected its equity during year 2012.
Jan. 5 Declared a $0.50 per share cash dividend, date of record January
Mar. 20 Purchased treasury stock for cash.
Apr. 5 Declared a $0.50 per share cash dividend, date of record April 10
July 5 Declared a $0.50 per share cash dividend, date of record July 10.
July 31 Declared a 20% stock dividend when the stock's market value is
Aug. 14 Issued the stock dividend that was declared on July 31.
Oct. 5 Declared a $0.50 per share cash dividend, date of record October
Required:
1. How many common shares are outstanding on each cash dividend date?
2. What is the total dollar amount for each of the four cash dividends?
3. What is the amount of the capitalization of retained earnings for the stock dividend?
4. What is the per share cost of the treasury stock purchased?
5. How much net income did the company earn during year 2012?
Problem 2:
Computation of book values and dividend allocations. Razz Corporation's common stock is currently selling on a stock exchange at $170 per share, and its current balance sheet shows the following stockholders' equity section.
Preferred stock -5% cumulative, $__ par value, 1,000 shares
authorized, issued and outstanding $100,000
Common stock-$___ par value, 4,000 shares authorized, issued
and oustanding 160,000
Retained earnings 300,000
Total stockholder's equity $560,000
Required (Round per share amounts to cents.)
1. What is the current market value (price) of this corporation's common stock?
2. What are the par values of the corporation's preferred stock and its common stock?
3. If no dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
4. If two years' preferred dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
5. If two years' preferred dividends are in arrears and the preferred stock is callable at $110 per share, what are the book values per share of the preferred stock and the common stock?
6. If two years' preferred dividends are in arrears and the board of directors declares cash dividends of $20,000, what total amount will be paid to the preferred and to the common shareholders? What is the amount of dividends per share for the common stock?
Analysis Component:
7. What are some factors that can contribute to a difference between the book value of common stock and its market value (price)?