I - JEKYLL EQUITY PROBLEM
Jekyll Inc. has the following items in their current balance sheet:
Common Stock 1,600,000 shares authorized, 300,000 issued $900,000
Capital Surplus $1,900,000
Treasury Stock on Common 30,000 shares $3,000,000
Cumulative Preferred Stock 5,000,000 authorized
[4%] $60 par $6,000,000
Retained Earnings $40,000,000
1. Jekyll Inc. wishes to announce a total cash dividend of $6,000,000. How is this dividend to be split between the common and preferred stockholders? Show dollar values.
2. What is the dividend payment per share for the preferred and the common shares outstanding?
3. Suppose Jekyll Inc. was four years in the arrears in paying dividends to the preferred stockholders, what is the dollar amount of the preferred and common shareholder dividends?
4. How many Jekyll Inc. common stock shares are outstanding?
5. If Jekyll Inc. announces a 2 for 1 stock split of the cumulative preferred then what is the new total amount of the preferred stock?
6. Could Jekyll Inc. offer a 4 for 1 stock split on the preferred shares?
7. If Jekyll Inc. were to provide for a 20% common stock dividend, then how many new shares are to be mailed to existing shareholders?
8. Assume in question [7] the market price of the common stock was $20 at the time of the stock dividend announcement. What is the journal entry to record the stock dividend?
9. Using the equity portion of the Jekyll Inc. balance sheet above, determine the amount of the total equity in Jekyll Inc. Assume this question ignores the results of questions [1-7] above.
10. If Jekyll Inc. announced a 3 for 1 reverse stock split on common stock what would the new par value per share be?
II - Second Problem
Baxter Corporation purchased a large machine for resurfacing roadways. The total price tag was $500,000. The machine was marketed by the seller as an item that would have a useful like of 10 years. Baxter has several options for depreciation methods but is considering three options: Straight Line; Double Declining Balance and Percentage Output. Engineers have determined that total output in hours for the machine would be 800,000 hours. In the past, Baxter used similar machines for 10,000 hours the first year; 20,000 the second year; 30,000 the third year; and 40,000 the fourth year.
1. Calculate the first four years of depreciation using the following methods:
Straight Line
Double Declining Balance
Percentage Output.
2. If the machine was acquired on July 31 of year one then what would your answers be for Question 1 knowing this new piece of information.