Accounting Help 01
Q1. Determining the Effects of the Issuance of Common and Preferred Stock, 11-3
Tandy, Incorporated, was issued a charter on January 15, 2014, that authorized the following capital stock:
Common stock, no-par, 93,000 shares
Preferred stock, 5 percent, par value $10 per share, 4,750 shares
The board of directors established a stated value on the no-par common stock of $12 per share. During 2014, the following selected transactions were completed in the order given:
- Sold and issued 15,000 shares of the no-par common stock at $27 cash per share.
- Sold and issued 2,000 shares of preferred stock at $25 cash per share.
- At the end of 2014, the accounts showed net income of $60,000.
1 Prepare the stockholders’ equity section of the balance sheet at December 31, 2014.
Assume that you are a common stockholder. If Tandy needed additional capital, would you prefer to have it issue additional common stock or additional preferred stock? Explain.
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Q2. Comparing Stock and Cash Dividends (AP11-4), 11-8
Chicago Company had the following stock outstanding and retained earnings at December 31, 2014:
The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Three independent cases are assumed:
Case A: The preferred stock is noncumulative; the total amount of dividends is $31,000.
Case B: The preferred stock is cumulative; the total amount of dividends is $35,000.
Case C: Same as Case B, except the amount is $90,000.
4 Compute the amount of dividends, in total and per share, that would be payable to each class of stockholders for each case. Show computations.
5 Assume the company issued a 30 percent common stock dividend on the outstanding shares when the market value per share was $24. Complete the following comparative schedule including explanation of the comparative differences.
Q3.Recording Dividends 11-11
Procter & Gamble is a well-known consumer products company that owns a variety of popular brands. A recent news article contained the following information:
CINCINNATI, March 9 /PRNewswire-FirstCall/—The Procter & Gamble Company (NYSE: PG) today said that earnings per share for the January through March quarter as well as the fiscal year is expected to exceed current consensus estimates by $0.01 to $0.02. The increased earnings are being driven by continued strong organic volume growth.
The company also announced today that its board of directors approved a 10% stock dividend to shareholders of record on May 21. This move does not change the proportionate interest a shareholder maintains in the company. The additional shares will be distributed on June 18. In a separate action, the board declared an increase in the annual rate of its common stock dividend from $1.82 to $2.00 per share.
6 Prepare any journal entries that P&G should make as the result of information in the preceding report. Assume that the company has 2,500 million shares outstanding, the par value is $1.00 per share, and the market value is $50 per share.
7 What do you think happened to the company’s stock price after the announcement?What factors did the board of directors consider in making this decision?
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