Question

Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You’ve been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

You’ve been able to retrieve the following information so far:

Number of common shares authorized	800,000
Number of common shares issued	650,000
Par value of common shares	$20
Par value of cumulative preferred shares	$30
Paid-in capital in excess of par-common stock	$7,000,000
Paid-in capital in excess of par-preferred stock	$0
Total retained earnings before the stock dividend is declared	$33,500,000
No treasury shares have been reissued.

	Total Cash	Preferred Dividends		Common Dividends
Year	Dividends	Total	Per Share	Total	Per Share
Year 1	40,000	40,000	0.20	0	0.00
Year 2	72,000	72,000	0.36	0	0.00
Year 3	113,000	68,000	0.34	45,000	0.09
Year 4	135,000	60,000	0.30	75,000	0.15
Year 5	150,000	60,000	0.30	90,000	0.18
Year 6	210,000	60,000	0.30	150,000	0.30

The company declared a 3% common stock dividend on December 1, and would like you to compute the following pieces of missing information. The market value of the common shares is $25.00 on December 1, and is $30.00 on the actual distribution date of the stock, December 31.

Fill in the missing information in the following table, using the information given and your work on the other panels. All “before” items are before the stock dividend was declared. All “after” items are after the stock dividend was declared and closing entries were recorded at the end of the year.

Total paid-in capital before the stock dividend
Total retained earnings before the stock dividend
Total stockholders’ equity before the stock dividend
Total paid-in capital after the stock dividend
Total retained earnings after the stock dividend
Total stockholders’ equity after the stock dividend

Answer 1

Preferred Stock	$       60,00,000	=60000/0.3*30
Common Stock	$    1,30,00,000	=650000*20
Paid-in capital in excess of par-common stock	$       70,00,000
Total Paid in Capital (Before Stock Dividend)	$   2,60,00,000

Total retained earnings before the stock dividend =  $33,500,000

Total stockholders’ equity before the stock dividend = $26000000 + 33500000 = $59500000

Stock Dividend = 650000 x 3% = 19500 shares

Preferred Stock	$       60,00,000
Common Stock	$    1,33,90,000	=13000000+19500*20
Paid-in capital in excess of par-common stock	$       70,97,500	=7000000+19500*(25-20)
Total Paid in Capital (After Stock Dividend)	$   2,64,87,500

Total retained earnings after the stock dividend = $33500000 - 19500 x 25 = $33012500

Total stockholders’ equity after the stock dividend = $26487500+33012500 = $59500000