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Chapter 13: 2RQ (page 707)
List three characteristics of a corporation.
The three characteristics of a corporation that can be listed are:
a. Separate Legal Entity
b. Limited Liability
c. Indefinite Life
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Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity
The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:
Common Stock—\(10 Par Value; 350,000 shares
authorized, 32,000 shares issued and outstanding
Paid-In Capital:
160,000
\) 320,000
650,000
Retained Earnings
Total Stockholders’ Equity \( 810,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 330,000
Total Paid-In Capital
During 2018, Goldstein completed the following selected transactions:
Feb. 6 Declared a 15% stock dividend on common stock. The market value of
Goldstein’s stock was \)25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.
Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.
Requirements
3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.
Computing earnings per share, price/earnings ratio, and rate of return on common stockholders’ equity
Bianchi Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income \( 34,380 \) 18,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets \( 285,000 \) 280,000
Paid-In Capital:
Preferred Stock—11%, \(9 Par Value; 60,000 shares
authorized, 12,000 shares issued and outstanding
\) 108,000 \( 108,000
Common Stock—\)2 Par Value; 60,000 shares
authorized, 50,000 shares issued and outstanding
100,000 100,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 60,500 38,000
Total Stockholders’ Equity \( 282,500 \) 260,000
Requirements
2. Compute Bianchi Company’s price/earnings ratio for 2018. Assume the company’s market price per share of common stock is $9. Round to two decimals.
Question: Journalizing a small stock dividend
Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.
Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.
Requirements
3. What is the overall effect on total stockholders’ equity?
What is par value?
Computing earnings per share and price/earnings ratio
Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket’s books include the following figures:
Preferred Stock—6%, \)60 par value; 2,000 shares authorized, 1,000
shares issued and outstanding \( 60,000
Common Stock—\)5 par value; 80,000 shares authorized, 48,000 shares
issued, 46,700 shares outstanding 240,000
Paid-In Capital in Excess of Par—Common 470,000
Treasury Stock—Common; 1,300 shares at cost (26,000)
Requirements
2. Assume Rocket’s market price of a share of common stock is $12 per share. Compute Rocket’s price/earnings ratio.
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