Question

I. Cash Dividends

Hart Corporation has the following equity balances:

Preferred shares, 6% (issued at par)       1 Mill

Common shares ($1 par)                       400,000

Additional Paid-in Capital – Common shares                     800,000

The following total dividends were declared during the year: 2012: $100,000; 2013: 20,000; 2014: 150,000

Calculate the dividends paid to preferred and common shareholders under each assumption.

   A. Assume that the preferred stock is non-cumulative

   B. Assume that the preferred stock is cumulative

    C. Assume that the preferred stock is cumulative and participating.

II. Stock Dividends

Neue Corporation has 100,000 shares of $5 par Common Stock outstanding. Show the journal entries to record the stock dividends.

On 12/1, when the fair of the stock is $80, the company declares a 10% stock dividend.

                       

On 12/1, when the fair of the stock is $80, the company declares a 30% stock dividend.

III. Stock redemptions

On January 2, 2014, Smith Corporation purchases 10,000 of its $2 par value common shares for $150 per share; the company does not plan to retire them. The shares were originally issued for $110 per share. On April 22, the company resold 4,000 shares for $160 per share; on October 15, the company re-sold 5,000 shares at $140 per share. On December 31, the remaining shares are retired. Show the journal entries to record each transaction.

IV. Test your understanding of the effect of equity transaction on the financial statements

Indicate the effect on the financial statement categories/subcategories as follows:

I – increase; D = decrease; N = no effect.Don’t leave any cells blank.

Transaction	Effect on Contributed Capital (CC)	Retained Earning	Total Stockholders’ Equity	Net Income
Sold common stock
Declared cash dividend
Paid previously declared cash dividend
Declared and issued stock dividend
Declared property dividend; the property’s fair value is greater than its BV
Purchased common stock to be resold later
Sold TS in excess of cost
Resold TS below cost (APIC-TS available)
Retired common shares
Resold TS below cost (APIC – TS not available)

Note:Is useful to prepare the journal entries to solve this problem.

Answer 1

ans 1
A
Assuming preferred stock is non cumulative
Year	Total dividend T	preferred dividend P	Common stock dividend T-P
2012	$100,000	60000	$40,000
		(1000000*6%)
2013	20000	20000	0
2014	150000	60000	$90,000
B) Preferred stock is cumulative
Year	Total dividend T	preferred dividend P	Common stock dividend T-P
2012	$100,000	60000	$40,000
		(1000000*6%)
2013	20000	20000	0
2014	150000	100000	$50,000
		(60000+40000)
c) preferred stock is cumulative and participating.
Year	Total dividend T	preferred dividend P	Common stock dividend T-P
2012	$100,000	60000	$40,000
		(1000000*6%)
2013	20000	20000	0
2014	150000	100000	$50,000
		(60000+40000)
ans 2
	Accounts Title	Dr	Cr
1-Dec	Stock Dividend (10000*80)	$800,000
	Stock dividend distrubutable (10000*5)		50000
	Additional Paid-in Capital – Common shares		750000
1-Dec	Stock Dividend (30000*80)	$2,400,000
	Stock dividend distrubutable (30000*5)		150000
	Additional Paid-in Capital – Common shares		2250000
	ransaction	Effect on Contributed	Retained Earning	Total Stockholders’ Equity	Net Income
		Capital (CC)
	Sold common stock	I	N	I	N
	Declared cash dividend	N	D	D	N
	Paid previously declared cash dividend	N	N	N	N
	Declared and issued stock dividend	I	D	N	N
	Purchased common stock to be resold later	N	N	D	N
	Sold TS in excess of cost	I	N	I	N
	Resold TS below cost (APIC-TS available)	N	N	I	N
	Retired common shares	D	N	D	N
	Resold TS below cost (APIC – TS not available)	N	D	D	N
Dear student there are different question I have done 1, 2 and 4th. If any doubt please comment