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Chapter 15: Question 2 Q (page 809)
Why is a preemptive right important?
As new shares are issued, and the company's ownership is diluted, preemptive rights prevent a shareholder from losing voting power.
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The books of Conchita Corporation carried the following account balances as of December 31, 2017.
Cash \( 195,000
Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000
Common Stock (no-par value, 300,000 shares issued) 1,500,000
Paid-in Capital in Excess of Par—Preferred Stock 150,000
Treasury Stock (common 2,800 shares at cost) 33,600
Retained Earnings 105,000
The company decided not to pay any dividends in 2017.
The board of directors, at their annual meeting on December 21, 2018, declared the following: “The current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.
Instructions
a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.
b) Could Conchita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?
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
Wilco Corporation has the following account balances on December 31, 2017.
Share capital—ordinary, \(5 par value \) 510,000
Treasury shares 90,000
Retained earnings 2,340,000
Share premium—ordinary 1,320,000
Instructions
Prepare Wilco’s December 31, 2017, equity section.
Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding.
(Stockholders’ Equity Section) Bruno Corporation’s post-closing trial balance at December 31, 2017, is shown as follows.
BRUNO CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2017 | ||
Dr. | Cr. | |
Accounts payable | \( 310,000 | |
Accounts receivable | \) 480,000 | |
Accumulated depreciation—buildings | 185,000 | |
Additional paid-in capital in excess | ||
of par—common | 1,300,000 | |
From treasury stock | 160,000 | |
Allowance for doubtful accounts | 30,000 | |
Bonds payable | 300,000 | |
Buildings | 1,450,000 | |
Cash | 190,000 | |
Common stock (\(1 par) | 200,000 | |
Dividends payable (preferred stock—cash) | 4,000 | |
Inventory | 560,000 | |
Land | 400,000 | |
Preferred stock (\)50 par) | 500,000 | |
Prepaid expenses | 40,000 | |
Retained earnings | 301,000 | |
Treasury stock (common at cost) | 170,000 | |
Totals | \(3,290,000 | \)3,290,000 |
At December 31, 2017, Bruno had the following number of common and preferred shares. | ||
Common | Preferred | |
Authorized | 600,000 | 60,000 |
Issued | 200,000 | 10,000 |
Outstanding | 190,000 | 10,000 |
The dividends on preferred stock are \(4 cumulative. In addition, the preferred stock has a preference in liquidation of \)50 per share.
Instructions
Prepare the stockholders’ equity section of Bruno’s balance sheet at December 31, 2017.
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