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The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed...

The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed Cumulative Preferred 9% Stock, $50 par (1,806shares authorized, 500 shares issued); Common Stock, $20 par (25,271 shares authorized, 9,338 shares issued); and Retained Earnings of $1,116. The Notes to the Financial Statements in the Annual Corporate Report for 2015 indicate that the market values of the stock are $42 per share (Cumulative Preferred) and $17per share (Common). Forecasts in the Annual Report also indicate that investments in future growth in 2016 are expected to result in sustained increased profits. In consideration of these matters, the Board of Directors has secured approval from the Securities and Exchange Commission for a bond issuance. The Board of Directors has also decided to forego paying dividends in 2015, and to repurchase shares of the corporation’s common stock at par, with a view to reselling the stock when market rates rise with increased profitability.

On January 2, 2016, $247,159 in 10 year, 7% bonds with a market interest rate of 9%, and interest payable semiannually, were issued for $189,839. On January 3, the corporation purchased 2,108 shares of its common stock at par. Profits soared during 2016, and on May 1, the corporation resold 1,551 shares of treasury stock, at $9 above par. On June 30, bond interest was paid. On December 31, the corporation showed an after tax Net Income of $56,505. On December 31, bond interest was paid; and dividends were declared and paid. Common shareholders received $2.32 per share.

What is the effect of the stock and bond transactions on Cash on the Balance Sheet on December 31, 2016?

Solutions

Expert Solution

Below is the effect on Cash Amount ($) Source
Proceeds from issue of Bonds A          1,89,839 As per Question
Re Purchase Share (2108*$20) B           (42,160) As per Question
Sale of Treasury Shares (1551*$9) C             13,959 As per Question
Bond Interesting Paid $247159*7% D           (17,301) As per Question
Preference Dividend (500 shares *$50)*9% E                2,250 As per Question
Common Stock Dividend $2.32*8781/ Shares F             20,372
Purchased Shares (a) 2108 As per Question
Sales Shares(b) 1551 As per Question
Net Sahres (a-b)=C 557
Common Stock -D 9338 As per Question
Net Stock (C-D) 8781
Net Inflow of Cash ( SUM OF A-F)          1,66,959

ekkarill92 answered 1 year ago
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