Question

1.Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is two years in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?

Ans: so I got 12000*100*.07=84000

320000-(84000*2)=152000 It is mentioned two years in arrears on its preferred stock. Do i need to do anything else or the solution is correct?

2.

Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2014:

Common stock, par value $20; authorized 75,000 shares;

issued and outstanding 45,000 shares $ 900,000

Paid-in capital in excess of par value 350,000

Retained earnings 300,000

Total: $1,550,000

During 2015, the following transactions occurred relating to stockholders' equity:

3,000 shares were reacquired at $28 per share.

3,000 shares were reacquired at $35 per share.

1,800 shares of treasury stock were sold at $30 per share.

For the year ended December 31, 2015, Oaks reported net loss of $150,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2015, balance sheet?

Answer 1

1. The solution is correct.

The nature of preferred dividend is cumulative. So, it keeps increasing unless paid. Hence, at present 2 years preferred dividend has to be paid.

2

Statement showing Stockholder Equity
Common stock, par value $20; authorized 75,000 shares;
issued and outstanding 45,000 shares	$900,000
Paid-in capital in excess of par value	$350,000
Paid-in capital in excess of par value - Treasury Stock ( $30-28)X 1800 Share	$3,600
Total Paid in Capital	$1,253,600
Retained earnings (300000-150000)	$150,000
Less: Treasury Share	($138,600)
Total Stockholders' Equity as on 31 Dec 2015	$1,265,000

Working note

Computation of Treasury Stock Balance
Accquired 3000 share @ $28	$84,000
Accquired 3000 share @ $35	$105,000
Less: Sold 1800 Treasury Share @28	$50,400
Balance of Treasury Stock	$138,600

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