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, 28,000 shares authorized; 13,000 shares issued and outstanding | $1,300,000 |
| Common stock, $5 par value, 320,000 shares authorized; 80,000 shares issued and outstanding | 400,000 |
| Paid-in capital in excess of par value—preferred stock | 40,000 |
| Paid-in capital in excess of par value—common stock | 480,000 |
| Retained earnings | 656,000 |
| Total stockholders' equity | $2,876,000 |
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 4% 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:
Stock dividend distributed on April 1 is large stock dividend and accounted at par value = 80000*100%*$5 = $400,000
Stock dividend distributed on Dec 7 is small stock dividend and accounted at market value = (80000+80000)*4%*$14 = $89,600
Cash dividend paid on Dec 20 = Preference dividend + Common stock dividend
= ($1,300,000*5%) + (166400*0.80) = $198,120
| 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 | $400,000.00 | -$400,000.00 | ||||
| 7-Dec | $0.00 | $0.00 | $0.00 | $89,600.00 | -$89,600.00 | ||||
| 20-Dec | -$198,120.00 | $0.00 | $0.00 | $0.00 | -$198,120.00 | ||||
| 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 for 2012 - Stock dividend - Cash dividend
= $656,000 + $253,000 - $400,000 - $89,600 - $198,120 = $221,280
ekkarill92 answered 11 months agoRelated Solutions
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Paid-in capital in excess of par value—common stock
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