Q1. Review exercise - calculate retained earnings. From the following data, calculate the Retained Earnings balance as of December 31, 2010:
Retained earnings, December 31, 2011 $490,400
Net decrease in total assets during 2011 74,800
Net increase in accounts receivable in 2011 17,200
Dividends declared and paid in 2011 67,200
Proceeds from issuance of bonds during 2011 176,800
Net loss for the year ended December 31, 2011 46,000
Q2. Common stock - calculate issue price and dividend amount. The balance sheet caption for common stock is the following:
Common stock without par value, 2,000,000 shares authorized, 400,000 shares issued, and 360,000 shares outstanding - $2,600,000
a. Calculate the average price at which the shares were issued.
b. If these shares had been assigned a stated value of $1 each, show how the caption here would be different.
c. If a cash dividend of $0.60 per share were declared, calculate the total amount of cash that would be paid to stockholders.
d. What accounts for the difference between issued shares and outstanding shares?
Q3. Preferred stock - calculate dividend amounts. Calculate the cash dividends required to be paid for each of the following preferred stock issues:
a. The semiannual dividend on 6% cumulative preferred, $50 par value, 30,000 shares authorized, issued, and outstanding.
b. The annual dividend on $3.60 cumulative preferred, 400,000 shares authorized, 180,000 shares issued, 148,200 shares outstanding. Last year's dividend has not been paid.
c. The quarterly dividend on 7.5% cumulative preferred, $100 stated value, $103 liquidating value, 120,000 shares authorized, 112,000 shares issued and outstanding. No dividends are in arrears.
Q4. Stock splits versus stock dividends. Assume that you own 600 shares of common stock of a company, that you have been receiving cash dividends of $6 per share per year, and that the company has a 4-for-3 stock split.
a. How many shares of common stock will you own after the stock split?
b. What new cash dividend per share amount will result in the same total dividend income as you received before the stock split?
c. What stock dividend percentage could have accomplished the same end result as the 4-for-3 stock split?
Q5. Common and preferred stock - issuances and dividends. Permabilt corp. was incorporated on January 1, 2010, and issued the following stock for cash:
3,600,000 shares of no-par common stock were authorized; 1,050,000 shares were issued on January 1, 2010, at $46 per share.
1,200,000 shares of $100 par value, 10.5% cumulative, preferred stock were authorized, and 420,000 shares were issued on January 1, 2010, at $132 per share.
Net income for the years ended December 31, 2010, 2011, and 2012, was $15,750,000, $22,350,000, and $26,100,000, respectively.
No dividends were declared or paid during 2010 or 2011. However, on December 17, 2012, the board of directors of Permabilt Corp. declared dividends of $37,200,000, payable on February 9, 2013, to holders of record as of January 4, 2013.
a. Use the horizontal model (and write the entry) to show the effects of
1. The issuance of common stock and preferred stock on January 1, 2010.
2. The declaration of dividends on December 17, 2012.
3. The payment of dividends of February 9, 2013.
b. Of the total amount of dividends declared during 2012, how much will be received by preferred stockholders?
Q6. Treasury stock transactions. On January 1, 2010, Metco, Inc., had issued an outstanding 574,600 shares of $2 par value common stock. On March 15, 2010, Metco, Inc., purchased for its treasury 4,400 shares of its common stock at a price of $75 per share. On August 10, 2010, 1,400 shares of these treasury shares were sold for $84 per share. Metco's directors declared cash dividends of $1.20 per share during the second quarter and again during the fourth quarter, payable on June 30, 2010, and December 31, 2010, respectively. A 2% stock dividend was issued at the end of the year. There were no other transactions affecting common stock during the year.
a. Use the horizontal model (and write the entry) to show the effect of the treasury stock purchase on March 15, 2010.
b. Calculate the total amount of the cash dividends paid in the second quarter.
c. Use the horizontal model (and write the entry) to show the effect of the sale of the treasury stock on August 10, 2010.
d. Calculate the total amount of cash dividends paid in the fourth quarter.
e. Calculate the number of shares of stock issued in the stock dividend.