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Chapter 13: Q11SE_1 (page 710)

Accounting for a stock split

Decor and More Imports recently reported the following stockholders鈥� equity:

Common Stock鈥擻(1 Par Value; 490,000,000 shares

authorized, 119,000,000 shares issued and outstanding

Paid-In Capital:

654,000,000

\) 119,000,000

267,000,000

Retained Earnings

Total Stockholders鈥� Equity \( 921,000,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 148,000,000

Total Paid-In Capital

Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company鈥檚 stock was trading at \)17 per share immediately before the split.

Requirements

1. Prepare the stockholders鈥� equity section of the Decor and More Imports balance sheet after the stock split.

Short Answer

Expert verified

The stockholders鈥� equity section of the balance sheet after the stock split shows $92,10,00,000 amount of total Shareholder鈥檚 Equity.

Step by step solution

01

Basic Introduction

Balance sheet is a financial statement that represents the value of assets, liabilities, and owners鈥� equity of a corporate at the end of the financial year.

02

Balance sheet (Partial)

D茅cor and More Imports

Balance sheet (Partial)

Shareholder鈥檚 equity

Paid-in capital

Common Stock鈥�$1 Par Value; 490,000,000 sharesauthorized, 119,000,000 shares issued and outstanding

$11,90,00,000

Paid-In Capital in Excess of Par鈥擟ommon

$14,80,00,000

$26,70,00,000

Add: Retained earnings

$65,40,00,000

Total Shareholder鈥檚 Equity

$92,10,00,000

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Most popular questions from this chapter

Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet

The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:

Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.

12 Issued 400 shares of preferred stock for cash of \)23,000.

14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.

Requirements

1. Record the transactions in the general journal.

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Bianchi Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 34,380 \) 18,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 280,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 shares

authorized, 12,000 shares issued and outstanding

\) 108,000 \( 108,000

Common Stock鈥擻)2 Par Value; 60,000 shares

authorized, 50,000 shares issued and outstanding

100,000 100,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 60,500 38,000

Total Stockholders鈥� Equity \( 282,500 \) 260,000

Requirements

3. Compute Bianchi Company鈥檚 rate of return on common stockholders鈥� equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

Preparing an income statement

The following information was taken from the records of Arizona Motorsports, Inc. at November 30, 2018:

Learning Objectives 3, 4

1. Nov. 8 Treasury Stock \(36,000

Learning Objective 5

Net Income \)37,840

Selling Expenses

Administrative Expenses

Income from Discontinued Operations

Cost of Goods Sold

Treasury Stock鈥擟ommon (1,500 shares)

Net Sales Revenue

\( 95,000

150,000

2,400

470,000

19,500

801,400

Common Stock, \)11 Par Value, 13,500

shares authorized and issued \( 148,500

Preferred Stock, \)2 No-Par Value, 2,000

shares issued 60,000

Income Tax Expense: Continuing

Operations 50,000

Income Tax Expense: Income from

Discontinued Operations 960

Prepare a multi-step income statement for Arizona Motorsports for the fiscal year ended November 30, 2018. Include earnings per share

Computing dividends on preferred and common stock and journalizing

Northern Communications has the following stockholders鈥� equity on December 31,

2018:

Preferred Stock鈥�5%, \(11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding

Paid-In Capital:

\) 220,000

760,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 680,0006

Total Paid-In Capital 1,660,000

Retained Earnings 200,000

Total Stockholders鈥� Equity \( 1,860,000

Common Stock鈥擻)2 Par Value; 575,000 shares

authorized, 380,000 shares issued and outstanding

Requirements

1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred stockholders and to common stockholders for 2018 and 2019 if total dividends are \(9,000 in 2018 and \)45,000 in 2019. Assume no changes in preferred stock and common stock in 2019.

How does preferred stock differ from common stock?
See all solutions

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