Question

In: Accounting

1. All of the following normally are found in a corporation's stockholders' equity section except Select...

1.

All of the following normally are found in a corporation's stockholders' equity section except

Select one:

a. Stock Dividend Distributable

b. Cash Dividend Payable

c. Paid-in Capital in Excess of Par Value

d. Retained Earning

2.

All of the following normally are found in a corporation's stockholders' equity section except

Select one:

a. Stock Dividend Distributable

b. Cash Dividend Payable

c. Paid-in Capital in Excess of Par Value

d. Retained Earning

3.

Jostens Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% bonds outstanding during 2024. The preferred stock is convertible into 20,000 shares of common stock. During 2024, Jostens paid dividends of $1.20 per share on its common stock and $2.50 per share on its preferred stock. Each $1,000 bond is convertible into 10 shares of common stock. The net income for the year ended December 31, 2024 was $800,000. Assume the income tax rate was 30%. Diluted earnings per share for 2024 (rounded to the nearest penny) are:

Select one:

a. $3.64

b. $3.35

c. $2.94

d. $3.28

e. $3.22

Solutions

Expert Solution

Answers

1) Option b, Cash Dividend Payable

  A common stock dividend distributable appears in the shareholders' equity section of a balance sheet, whereas cash dividends distributable appear in the liabilities section.

2) Option b, Cash Dividend Payable

3) Option a. $3.64

workings

  Step 1: Calculate the earning left for equity shareholder

  

Net Income $800,000

Less: Preference Dividend (20000* $2.5)   $50,000

Earnings for common share holders   $750,000

Step 2: Calculate the increase earnings due to the conversion of preference shares and bonds into common stock

Particulars Amount
Preference dividend (Step 1) $50000
Interest saved (($1,000,000 * 10%) - ($1,000,000 * 10%) *30%) $70,000
Total increase in the earnings $120,000

Step 3: Calculate the weighted average common stock outstanding assuming all preference shares and bond are converted

Particulars Amount
Common stock (given) 200,000
Preference shares converted to common stock 20,000
Bonds converted to common stock (($1,000,000 / $1,000) * 10 shares) 10,000
Total weighted average common stock outstanding 230,000

Step 4: Calculate the diluted earnings per share fro 2017 as follows:

Diluted earnings per share =

=

= $3.78 (rounded to $3.64)


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