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Chapter 13: Q20RQ (page 707)
What does the statement of retained earnings report?
The statement of retained earnings reports how the corporation's retained earnings balance transformed from the start of the period to the end of the period.
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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.
Journalizing issuance of stock and preparing the stockholders’ equity section of the balance sheet
The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:
Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.
12 Issued 400 shares of preferred stock for cash of \)23,000.
14 Issued 1,500 shares of common stock in exchange for land with a market value of \(17,000.
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of the ASAP-TV balance sheet atSeptember 30, 2018, assuming ASAP-TV, Inc. had net income of \)38,000 for the month.
Question: Accounting for cash dividends
Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.
Requirements
2. Journalize for Java the entry paying the cash dividends on January 4, 2019.
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
2. Would you recommend they initially issue preferred or common stock?Why?
Journalizing a stock dividend and reporting stockholders’ equity
The stockholders’ equity of Lakeside Occupational Therapy, Inc. on December 31, 2017, follows:
Common Stock—\(1 Par Value; 1,200 shares
authorized, 400 shares issued and outstanding
Paid-In Capital:
120,000
400
2,000
Retained Earnings
Total Stockholders’ Equity \) 122,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 1,600
Total Paid-In Capital
\(
On April 30, 2018, the market price of Lakeside’s common stock was \)16 per share and the company declared a 13% stock dividend. The stock was distributed on May 15.
Requirements
1. Journalize the declaration and distribution of the stock dividend.
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