Question

Identifying and Analyzing Financial Statement Effects of Dividends
The stockholders' equity of Hammel Company at December 31, 2016, is shown below.

5% preferred stock, $100 par value, 10,000 shares authorized; 6,000 shares issued and outstanding	$600,000
Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding	350,000
Paid-in capital in excess of par value—preferred stock	50,000
Paid-in capital in excess of par value—common stock	400,000
Retained earnings	747,000
Total stockholders' equity	$2,147,000

The following transactions, among others, occurred during 2017:
Apr. 1 Declared and issued a 100% stock dividend on all outstanding shares of common stock. The market value of the stock was $14 per share.
Dec. 7 Declared and issued a 4% stock dividend on all outstanding shares of common stock. The market value of the stock was $17 per share.
Dec. 20 Declared and paid (1) the annual cash dividend on the preferred stock and (2) a cash dividend of 90 cents per common share.

(a) Use the financial statement effects template to indicate the effects of these separate transactions.

Use negative signs with answers, when appropriate.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Apr. 1	Answer		Answer		Answer		Answer		Answer
Dec. 7	Answer		Answer		Answer		Answer		Answer
Dec. 20	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer

(b) Compute retained earnings for 2017 assuming that the company reports 2017 net income of $523,000.
$Answer

Answer 1

1-Apr	large stock dividend is always issued at par
	70,000 shares *$5=					350000
7-Dec	4% stock dividend is small dividend
	140,000*4% =			5600
	5600 shares issued at market value of $17=					95200
20-Dec	dividend
	preferred = 600,000*5%=				30000
	common =(140000+5600)*.9=				131040
	total dividends					161040
	total dividends					606240
		Non		contributed	earned	revenue	Expense	net
TRN	Cash	cash	liabilities	capital	capital			income
	Asset	Assets
1-Apr				350,000	-350,000
7-Dec				95,200	-95,200
20-Dec	-161,040				-161,040
b)		Retained earnings for 2017
	opening retained earnings					747,000
	Add:Net income for the year					523,000
	subtotal					1,270,000
	less:total dividends					606240
	retained earnings for 2017					663,760