Question
In: Accounting
Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Kinney Company at December...
Identifying and Analyzing Financial Statement Effects of
Dividends
The stockholders' equity of Kinney Company at December 31, 2011, is
shown below.
| 5% preferred stock, $100 par value, 12,000 shares authorized; 5,000 shares issued and outstanding | $ 500,000 |
| Common stock, $5 par value, 400,000 shares authorized; 100,000 shares issued and outstanding | 500,000 |
| Paid-in capital in excess of par value—preferred stock | 40,000 |
| Paid-in capital in excess of par value—common stock | 600,000 |
| Retained earnings | 656,000 |
| Total stockholders' equity | $2,296,000 |
The following transactions, among others, occurred during
2012:
Apr. 1 Declared and issued a 100% stock dividend on all outstanding
shares of common stock. The market value of the stock was $11 per
share.
Dec. 7 Declared and issued a 3% stock dividend on all outstanding
shares of common stock. The market value of the stock was $14 per
share.
Dec. 20 Declared and paid (1) the annual cash dividend on the
preferred stock and (2) a cash dividend of 80 cents per common
share.
(a) Use the financial statement effects template to indicate the
effects of these separate transactions.
Use negative signs with your 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 2012 assuming that the company
reports 2012 net income of $253,000.
$Answer
Solutions
Expert Solution
Solution a:
A small stock dividend is accounted for at market price on the date of declaration. A large stock dividend is accounted for at par value.
Therefore 100% stock dividend will be accounted at par value and 3% stock dividend will be accounted for market value
| Financial Statement Effect - Kinney Company | |||||||||
| Balance Sheet | |||||||||
| Transaction | Cash Assets | + | Non Cash Assets | = | Liabilities | + | Contributed Capital | + | Earned Capital |
| 1-Apr | $0.00 | $0.00 | $0.00 | $500,000.00 | -$500,000.00 | ||||
| 7-Dec | $0.00 | $0.00 | $0.00 | $84,000.00 | -$84,000.00 | ||||
| 20-Dec | -$189,800.00 | $0.00 | $0.00 | $0.00 | -$189,800.00 | ||||
| Financial Statement Effect - Kinney Company | |||||
| Income Statement | |||||
| Transaction | Revenue | - | Expenses | = | Net Income |
| 1-Apr | $0.00 | $0.00 | $0.00 | ||
| 7-Dec | $0.00 | $0.00 | $0.00 | ||
| 20-Dec | $0.00 | $0.00 | $0.00 | ||
Solution b:
Retained earnings for 2012 = Opening retained earnings + Net Income - Stock Dividend distributed - Cash dividend distributed
= $656,000 + $253,000 - $584,000 - $189,800 = $135,200
ekkarill92 answered 1 year agoRelated Solutions
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350,000
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Paid-in capital in excess of par value—common stock
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