1) Determining the Effects of the Issuance of Common and Preferred Stock, 11-3
Tandy, Incorporated, was issued a charter on January 15, 2014, that authorized the following capital stock:
Common stock, no-par, 93,000 shares
Preferred stock, 5 percent, par value $10 per share, 4,750 shares
The board of directors established a stated value on the no-par common stock of $12 per share. During 2014, the following selected transactions were completed in the order given:
1. Sold and issued 15,000 shares of the no-par common stock at $27 cash per share.
2. Sold and issued 2,000 shares of preferred stock at $25 cash per share.
3. At the end of 2014, the accounts showed net income of $60,000.
Required: Prepare the stockholders' equity section of the balance sheet at December 31, 2014. Assume that you are a common stockholder. If Tandy needed additional capital, would you prefer to have it issue additional common stock or additional preferred stock? Explain.
2) Comparing Stock and Cash Dividends
Chicago Company had the following stock outstanding and retained earnings at December 31, 2014:
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Common stock (par $8; outstanding, 35,000 shares)
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$280,000
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Preferred stock, 10% (par $15; outstanding, 8,000 shares)
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120,000
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Retained earnings
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281,000
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The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Three independent cases are assumed:
Case A: The preferred stock is noncumulative; the total amount of dividends is $31,000.
Case B: The preferred stock is cumulative; the total amount of dividends is $35,000.
Case C: Same as Case B, except the amount is $90,000.
Required:
1. Compute the amount of dividends, in total and per share, that would be payable to each class of stockholders for each case. Show computations.
2. Assume the company issued a 30 percent common stock dividend on the outstanding shares when the market value per share was $24. Complete the following comparative schedule including explanation of the comparative differences.
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AMOUNT OF DOLLAR INCREASE (DECREASE)
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Item
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Cash Dividend-Case C
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Stock Dividend
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Assets
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$
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$
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Liabilities
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$
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$
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Stockholders' equity
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$
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$
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3) Recording Dividends 11-11
Procter & Gamble is a well-known consumer products company that owns a variety of popular brands. A recent news article contained the following information:
CINCINNATI, March 9 /PRNewswire-FirstCall/-The Procter & Gamble Company (NYSE: PG) today said that earnings per share for the January through March quarter as well as the fiscal year is expected to exceed current consensus estimates by $0.01 to $0.02. The increased earnings are being driven by continued strong organic volume growth.
Stock Dividend
The company also announced today that its board of directors approved a 10% stock dividend to shareholders of record on May 21. This move does not change the proportionate interest a shareholder maintains in the company. The additional shares will be distributed on June 18. In a separate action, the board declared an increase in the annual rate of its common stock dividend from $1.82 to $2.00 per share.
Required:
1. Prepare any journal entries that P&G should make as the result of information in the preceding report. Assume that the company has 2,500 million shares outstanding, the par value is $1.00 per share, and the market value is $50 per share.
2. What do you think happened to the company's stock price after the announcement?
3. What factors did the board of directors consider in making this decision?