In: Accounting
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 |
Additional Paid-in Capital - Common Stock | $7,000,000 |
Additional Paid-in Capital - Preferred Stock | $0 |
Total retained earnings before the stock dividend is declared | $33,500,000 |
Total Cash |
Preferred Dividends |
Common Dividends |
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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 | 122,000 | 68,000 | 0.34 | 54,000 | 0.09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year 4 | 150,000 | 60,000 | 0.30 | 90,000 | 0.15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year 5 | 168,000 | 60,000 | 0.30 | 108,000 | 0.18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year 6 | 240,000 | 60,000 | 0.30 | 180,000 |
0.30 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:
X Cash Dividends Shaded cells have feedback. The accounting manager for the company prepared the schedule of cash dividends paid from Year 1 to Year 6 on the Pranks, Inc. panel. However, one of the reasons for Pranks, Inc.’s missing information is that the manager is away on vacation and is unreachable by phone, because he is backpacking on a remote island that does not have cell phone reception. Management would like you to determine some information from the data you’ve collected regarding its outstanding stock. Fill in the following answers.
Points: 3 / 3 Feedback Check My Work Review the definitions of the items, and the amounts that are included in their computation. X Stock Dividend Shaded cells have feedback. 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 $24.00 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.
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Part 1)
The number of common stock outstanding, preferred stock outstanding and preferred dividend as a percent of par is calculated as follows:
Number of Common Stock Outstanding = Total Common Stock Dividend Paid in 2016/Dividend Paid Per Share = 150,000/.30 = 500,000 shares
______
Number of Preferred Stock Outstanding = Total Preferred Dividend Paid in 2016/Dividend Paid Per Share = 60,000/.30 = 200,000 shares
______
Preferred Dividend as a Percent of Par = (Preferred Dividend Per Share)/Par Value*100 = .30/30*100 = 1%
______
Part 2)
The value of paid-in capital before stock dividend, total retained earnings before stock dividend and total stockholder's equity before stock dividend is given below:
Total Paid-in Capital (Common Stock) [500,000*20 + 7,000,000] |
17,000,000 |
Total Paid-in Capital (Preferred Stock) [200,000*30] |
6,000,000 |
Total Paid-in Capital Before Stock Dividend |
$23,000,000 |
Retained Earnings before Stock Dividend |
$33,500,000 |
Total Stockholder's Equity before Stock Dividend [23,000,000 + 33,500,000] |
$56,500,000 |
_____
The value of paid-in capital after stock dividend, total retained earnings after stock dividend and total stockholder's equity after stock dividend is given below:
Total Paid-in Capital (Common Stock) [500,000*20 + 7,000,000 + 500,000*2%*20] |
17,200,000 |
Total Paid-in Capital (Preferred Stock) [200,000*30] |
6,000,000 |
Total Paid-in Capital after Stock Dividend |
$23,200,000 |
Retained Earnings after Stock Dividend [33,500,000 - 500,000*2%*24] |
$33,260,000 |
Total Stockholder's Equity before Stock Dividend [23,000,000 + 33,500,000 + (240,000 - 200,000)] |
$56,500,000 |
______
Part 3)
1)
Yes, because the number of shares issued (750,000) is greater than the number of shares outstanding (500,000). (Which is Option B?)
______
2)
The annual preferred dividend is $60,000 (200,000*.30). The company paid a dividend of $40,000 in Year 2011. The balance amount of $20,000 (200,000*.30 - 40,000) in arrears for 2011 is paid as follows:
Year 2012 = 72,000 - 60,000 = $12,000
Year 2013 = 68,000 - 60,000 = $8,000