Question
In: Accounting
Snow Inc. has the following items in its current balance sheet: Common Stock 10,000,000 shares authorized...
Snow Inc. has the following items in its current balance sheet:
Common Stock 10,000,000 shares authorized with 2,000,000 issued $6,000,000
Capital Surplus $24,000,000
Treasury Stock on Common 100,000 shares $6,000,000
Cumulative Preferred Stock 500,000 authorized
[2%] $100 par $8,000,000
Treasury Stock on Preferred Stock 10,000 shares $6,000,000
Retained Earnings $60,000,000
- Snow Inc. wishes to announce a total cash dividend of $40,000,000. How is this dividend to be split between the common and preferred stockholders?
- What is the dividend per share for common and preferred after the dividend distribution from question 1 above?
- Suppose Snow Inc. was three years in the arrears in paying dividends to the preferred stockholders, then what is the dollar amount of the preferred and common shareholder dividend?
- How many Snow common stock shares are truly outstanding?
- If Snow Inc. announces a 2 for 1 stock split of the cumulative preferred, then what is the new total number of shares outstanding after the preferred stock split?
- If Snow Inc. were to provide for a 5% common stock dividend, then how many new shares are to be mailed to existing shareholders?
- Assume in question [6] the market price of the common stock was $15 at the time of the stock dividend. Provide journal entry to record the stock dividend?
- Using the equity portion of Snow Inc. balance sheet above, determine the amount of the total equity in Snow Inc. Assume this question ignores the results of questions [1-7] above.
- What is the impact of the common and preferred cash dividend [$40,000,000 as per question 1 above] on the current balance sheet of Snow Inc.?
- What is the impact of the 20% common stock dividend on the balance sheet? Assume this question ignores questions [1-9] above.
Solutions
Expert Solution
As per policy, only 4 parts of a question are allowed to answer at a time, so answering 7 parts here :
| Par value of common stock = $6000000 / 2000000 = $3 per Common Share | |||||||||
| Outstanding Common Stock = 2000000 - 100000 = 1900000 | |||||||||
| Outstanding Preferred Stock = ($8000000/$100) - 10000 = 70000 | |||||||||
| Ans 1) Preferred dividend = (70000 * $100) * 2% = $140000 | |||||||||
| Cash dividend to Common shareholder= $40,000,000 - $140,000 = $39860000 | |||||||||
| Ans 2) Dividend per share: | |||||||||
| Common= | 39860000/1900000 = $20.98 | ||||||||
| Preferred= | 140000/70000 = $2 | ||||||||
| Ans 3) Preferred dividend (with arrears) = (70000 * $100) * 2% * (3 + 1)= $140000 * 4 = $560000 | |||||||||
| Cash dividend to Common shareholder= $40,000,000 - $560,000 = $39440000 | |||||||||
| Ans 4) Outstanding Common Stock = 2000000 - 100000 = 1900000 | |||||||||
| Ans 5) Outstanding Preferred Stock after split= [($8000000/$100) - 10000] * (2/1) = 70000 * 2 = 140000 | |||||||||
| Ans 6) At 5% common stock dividend, new shares mailed to existing shareholders = 1900000 * 5% = 95000 shares | |||||||||
| Ans 7)Journal Entry to record the stock dividend : | |||||||||
| Accounts Title | Debit $ | Credit $ | |||||||
| Stock Dividend | 1425000 | (95000*15) | |||||||
| Common Stock | 285000 | (95000*3) | |||||||
| Capital Surplus | 1140000 | (95000*12) | |||||||
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