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Chapter 15: Question 13Q (page 810)
Where in the financial statements is preferred stock normally reported?
The equity section of the balance sheet.
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The following note related to stockholders’ equity was reported in Wiebold, Inc.’s annual report.
On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on February 22 to shareholders of record on February 10. Accordingly, all numbers of common shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this stock split. On the basis of amounts declared and paid, the annualized quarterly dividends per share were \(0.80 in the current year and \)0.75 in the prior year. |
Instructions
(Dividends and Splits) Myers Company provides you with the following condensed balance sheet information.
Asset
Current assets \(40,000
Equipment (net) 250,000
Intangibles 60,000
Total assets \)410,000
Liabilities and Stockholders’ Equity
Current and long-term liabilities \(100,000
Stockholders’ equity
Common stock (\)5 par) \( 20,000
Paid-in capital in excess of par 110,000
Retained earnings 180,000 310,000
Total liabilities and stockholders’ equity \)410,000
Instructions
For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders’ equity. (Each situation is independent.)
Hatch Company has two classes of capital stock outstanding: 8%, \(20 par preferred and \)5 par common. At December 31, 2017, the following accounts were included in stockholders’ equity.
Preferred Stock, 150,000 shares \( 3,000,000
Common Stock, 2,000,000 shares 10,000,000
Paid-in Capital in Excess of Par—Preferred Stock 200,000
Paid-in Capital in Excess of Par—Common Stock 27,000,000
Retained Earnings 4,500,000
The following transactions affected stockholders’ equity during 2018.
Jan.1 30,000 shares of preferred stock issued at \)22 per share.
Feb.1 50,000 shares of common stock issued at \(20 per share.
June 1 2-for-1 stock split (par value reduced to \)2.50).
July 1 30,000 shares of common treasury stock purchased at \(10 per
share. Hatch uses the cost method.
Sept.15 10,000 shares of treasury stock reissued at \)11 per share.
Dec.31 The preferred dividend is declared, and a common dividend of 50¢
per share is declared.
Dec. 31 Net income is $2,100,000.
Instructions
Prepare the stockholders’ equity section for Hatch Company at December 31, 2018. Show all supporting computations.
Green Day Corporation has outstanding 400,000 shares of \(10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is \)65 per share. Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.
What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.
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