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Chapter 13: Q17RQ (page 707)
What are some reasons corporations issue stock dividends?
A corporation may issue a stock dividend instead of paying a cash dividend to minimize cash distribution, decrease market price of each share, increase no of shares of stock outstanding.
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Rocky Corporation鈥檚 accounting records include the following items, listed in no particular order, at December 31, 2018:
Other Income and (Expenses) \( (6,000) Cost of Goods Sold \) 29,200
Net Sales Revenue 70,800 Operating Expenses 22,000
Gain on Discontinued Operations 4,800
The income tax rate for Rocky Corporation is 30%. Prepare Rocky鈥檚 income statement for the year ended December 31, 2018.
Omit earnings per share. Use a multi-step format
Journalizing stock issuance and cash dividends and preparing the stockholders鈥� equity section of the balance sheet
C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, \(150 par value cumulative preferred stock, and 140,000 shares of \)3 par value common stock. During the first month, C-Mobile completed the following transactions:
Oct. 2 Issued 18,000 shares of common stock for a building with a market value of \(260,000.
6 Issued 650 shares of preferred stock for \)160 per share.
9 Issued 14,000 shares of common stock for cash of \(84,000.
10 Declared a \)13,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.
25 Paid the cash dividend.
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders鈥� equity section of C-Mobile鈥檚 balance sheet at October 31, 2018. Assume C-Mobile鈥檚 net income for the month was $95,000.
Question: Accounting for cash dividends
Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.
Requirements
1. Journalize for Java the entry declaring the cash dividends on December 15, 2018.
Computing dividends on preferred and common stock and journalizing
The following elements of stockholders鈥� equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:
800,000
Preferred Stock鈥�4%, \(2 Par Value; 80,000 shares
authorized, 55,000 shares issued and outstanding
Paid-In Capital:
\) 110,000
Stockholders鈥� Equity
Common Stock鈥�$0.10 Par Value; 8,750,000 shares
authorized, 8,000,000 shares issued and outstanding
Sneed paid no preferred dividends in 2017.
Requirements
2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
2. Would you recommend they initially issue preferred or common stock?Why?
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