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 $32.00 on the actual distribution date of the stock, December 31.

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 =

How do I calculate these totals? Please help!

Answer 1

Solution

Number of Shares Authorised	800,000
Number of Common Shares issued	650,000
Par Value of common shares	$                            20.00
Par Value of cumulative preferred stock	$                            30.00
Paid-in capital in excess of par-common stock	$              7,000,000.00
Paid-in capital in excess of par-preferred stock	$                                   -
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Common Share outstanding
Dividend per share	0.3
Total dividend	150000
Common Share outstanding	=150000/0.3
	500,000
Cumulative Preference Share outstanding
Dividend per share	0.3
Total dividend	60000
Common Share outstanding	=60000/0.3
	180,000
Total Paid-in Capital before the stock dividend
Number of Common Shares issued	650000
Par Value of common shares	$                            20.00
Total Paid-in Capital before the stock dividend	=650,000*$20
	$           13,000,000.00
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Total Shareholder Equity before the stock dividend
Number of Common Shares issued	650,000
Par Value of common shares	$                            20.00
Total Paid-in Common stock	=650,000*$20	$ 13,000,000.00
Par Value of cumulative preferred stock	$                            30.00
Number of Cumulative Preference Share outstanding	180,000
Total Paid-in Cumulative Preference stock	=180,000*$30	$ 5,400,000.00
Paid-in capital in excess of par-common stock		$    7,000,000.00
Total Paid-in cumulative preferred stock	=650,000*$20	$ 13,000,000.00
Total retained earning before the stock dividend is declared		$ 33,500,000.00
Total Shareholder Equity before the stock dividend	(sum of all above)	$ 71,900,000.00
Stock Dividend (a)	3%
ie shareholder will receive 3 shares for every 100 share owned
Total Number of Common share outstanding	500000	(pls note that treasury share are not eligible for stock dividend)
Number of shares due to stock dividend	=500000*3/100
Number of shares due to stock dividend	15,000
Total Paid-in Capital before the stock dividend
Number of Common Shares issued	650000
Par Value of common shares	$                            20.00
Total Paid-in Capital before the stock dividend (a)	=650,000*$20
		$ 13,000,000.00
Add: Number of shares due to stock dividend	15,000
Par Value of common shares	$                            20.00
Total Value (b)	=15000*20	$ 300,000.00
Total Paid-in Capital After the stock dividend. C=a+b	=$13,000,000+$300,000	$ 13,300,000.00
Total retained earning Post stock dividend
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Less: Adjustment of Stock Dividend	$               (300,000.00)
Total retained earning Post stock dividend	$           33,200,000.00
Total Shareholder Equity before the stock dividend
Number of Common Shares issued	650,000
Number of Shares due to Stock Dividend	15,000
Par Value of common shares	$                            20.00
Total Paid-in Common stock	=(650,000+15000)*$20	$ 13,300,000.00
Par Value of cumulative preferred stock	$                            30.00
Number of Cumulative Preference Share outstanding	-
Total Paid-in Cumulative Preference stock	=180,000*$30	$ 5,400,000.00
Paid-in capital in excess of par-common stock		$    7,000,000.00
Total Paid-in cumulative preferred stock	=650,000*$20	$ 13,000,000.00
Total retained earning After the stock dividend is declared		$ 33,200,000.00
Total Shareholder Equity after stock dividend	(sum of all above)	$ 71,900,000.00
Please note that there will no impact in Total Shareholder Equity due to stock dividends as stock dividends mearly decreases the Retained earning and increases the Paid up share capital

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