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Exam 11: Corporate Reporting and Analysis

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Question 51

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What is a corporation? Identify the key advantages and disadvantages of corporations.

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A corporation is an entity created by la...

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Question 52

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Shaw Corporation reported stockholders' equity on December 31 of the prior year as follows: $\begin{array} { |l | r |} \hline \begin{array} { lr } \text { Common stock, } \$ 5 \text { par value, } 1,000,000 \text { shares } \\\text { authorized, } 500,000 \text { shares issued } \ldots \ldots \ldots\end{array} & \$ 2,500,000 \\\hline \text { Paid-in capital in excess of par, common stock } \ldots & 1,000,000 \\\hline \text { Retained earnings } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 3,000,000 \\\hline\end{array}$ The following selected transactions occurred during the current year: $\begin{array}{|l|l|}\hline&\text { The board of directors declared a 5 \% stock dividend to stockholders of }\\&\text { record on March 1, payable March } 20 \text {. The stock was selling for } \$ 8 \text { per }\\\text {Feb. 15}&\text { share.}\\\hline\text { Mar. } 9 & \text { Distributed the stock dividend. } \\\hline \text { May } & \text { A cash dividend of } \$ 0.30 \text { per share was declared by the board of directors } \\1 & \text { to stockholders of record on May 20, payable June 1. } \\\hline \text { Tune } 1 & \text { Paid the cash dividend. } \\\hline \text { Aug. 20 } & \text { The board decided to split the stock 4-for-1, effective on September 1. } \\\hline \text { Sept. 1 } & \text { Stock split 4-for-1. } \\\hline \text { Dec. } 31 & \text { Earned a net income of } \$ 800,000 \text { for the current year. }\\\hline\end{array}$ Prepare a statement of retained earnings as of December 31 of the current year.

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Question 53

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A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $70,000.The entry to record this exchange is:

Parlay Corporation has 2,000,000 shares of $0.50 par value common stock outstanding.The following selected transactions related to the company's stock took place during the current year: $\begin{array} { |l|l| } \hline&\text { Declared a } 40 \% \text { stock dividend to stockholders of record on May } 1 \text {, to be } \\\text { Apr. } 15 &\text { issued May } 10 \text {. The current market value is } \$ 15 \text { per common share. }\\\hline\end{array}$ Prepare necessary journal entries to record the events of April 15,May 1 and May 10.

Book value per common share is computed by:

Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.

A corporation had the following stock outstanding when the company's board of directors declared a $55,000 cash dividend during the current year: $\begin{array} { | l | l | } \hline \text { Preferred stock, } \$ 10 \text { par, } 4 \% , 50,000 \text { shares issued } & \$ 500,000 \\\hline \text { Common stock, } \$ 1 \text { par, } 750,000 \text { shares issued } & 750,000 \\\hline \text { Total }& \$1,250,000\\\hline\end{array}$ Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is cumulative and nonparticipating and dividends are one year in arrears.

On January 10,Mood Corporation purchased 15,000 shares of its own common stock at $17.50 per share.On August 4,a total of 2,000 treasury shares were sold at $19.00 per share.These are the only treasury stock transactions ever made by the corporation.Prepare the journal entries required on January 10 and August 4.

The total number of shares outstanding is the authorized stock.

Paid-in capital is the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

If a corporation receives assets other than cash in exchange for stock,it records the assets received at their market value as of the date of the transaction.

What is a stock split? How is a stock split different from a stock dividend?

Gershwin Company reported net income of $428,000 and paid $8,500 in preferred cash dividends during the current year.The company had 110,000 common shares issued,and 10,000 common shares in treasury during the year.The year-end market price per common share was $41.05.Calculate the company's price-earnings ratio.

Slate Corporation had the following balances in its stockholders' equity accounts at December 31,2017: $\begin{array}{|l|c|}\hline \text { Common Stock, \$ 10 par, 500,000 shares authorized, }\\ \text { 20,000 shares issued}& \$ 200,000 \\\hline \text { Paid-in Capital in Excess of Par Value, Common } & 250,000 \\\hline \text { Retained Earnings } & 500,000 \\\hline \text { Treasury Stock, 1,000 shares } & (20,000) \\\hline \text { Total stockholders' equity}&\$ 930,000\\\hline\end{array}$ The following transactions occurred during 2018: $\begin{array} { | l | l | } \hline \text { February } 3 & \text { Sold and issued } 2,000 \text { shares of common stock for } \$ 22 \text { per share } \\\hline \text { May } 10 & \text { Declared a } \$ 0.50 \text { per share dividend on common stock. } \\\hline \text { October } 12 & \text { Sold } 500 \text { shares of the treasury stock for } \$ 20 \text { per share. } \\\hline \text { December } 31 & \text { Net income for the year was determined to be } \$ 75,000 \\\hline\end{array}$ Based on the above information,prepare a statement of stockholders' equity for 2018.Use the form below. $\begin{array}{c}\text { Slate Corporation}\\\text { Statement of Stockholders' Equity}\\\text { December 31,2018}\\\begin{array}{|c|c|c|c|c|c|}\hline&&\text { Paid-in } &&\\ &&\text { Capital in }\\&& \text { Excess of } & & & \\&\text { Common } & \text { Par Value, } & \text { Retained } & \text { Treasury } & \\&\text { Stock } & \text { Common } & \text { Earnings } & \text { Stock } & \text { Total Equity }\\ \hline\text { Balance, December }\\ 31,2017 & \$ 200,000 & \$ 250,000 & \$ 500,000 & \$(20,000) & \$ 930,000 \\\hline & & & & & \\\hline & & & & & \\\hline & & & & & \\\hline & & & && \\\hline\end{array}\end{array}$

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

A corporation had the following stock outstanding when the company's board of directors declared a $75,000 cash dividend in the current year: $\begin{array}{|l|r|}\hline\text { Preferred stock, } \$ 40 \text { par, } 6 \%, 12,500 \text { shares issued } & \$ 500,000 \\\hline \text { Common stock, } \$ 10 \text { par, } 70,000 \text { shares issued } & 700,000\\\hline\text { Total }&\$1,200,000\\\hline\end{array}$ Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is noncumulative and nonparticipating.

A company has $200,000 of 10% noncumulative,nonparticipating,preferred stock outstanding,and $150,000 of common stock outstanding.In the company's first year of operation,no dividends were paid,but during the second year,it paid cash dividends of $25,000.Compute the dividends to be distributed to (1)preferred shares and (2)common shares.

Explain the difference between a large stock dividend and a small stock dividend.In addition,explain how to record these two types of stock dividends.

Dividend yield shows the annual amount of cash dividends distributed to common shares relative to the stock's market price.

Common stock always carries a preference for receiving dividends over preferred stock.