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Ex. 15-159-Computation of Selected Financial Ratios
Ex. 15-159-Computation of Selected Financial Ratios
Dividend rate 8%
Ordinary shares:
Instructions
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Share premium—ordinary 200,000
Instructions
Assuming that all of the company's retained earnings are to be paid out in dividends on 12/31/11 and that preference dividends
were last paid on 12/31/09, show how much the preference and ordinary shareholders should receive if the preference share
are cumulative and fully participating.
(a) As of 12/31/11, it is desired to distribute $250,000 in dividends. How much will the preference shareholders receive if their
shares are cumulative and nonparticipating?
(b) As of 12/31/11, it is desired to distribute $400,000 in dividends. How much will the preference shareholders receive if their
shares are cumulative and participating up to 11% in total?
(c) On 12/31/11, the preference shareholders received a $120,000 dividend on their shares which are cumulative and fully
participating. How much money was distributed in total for dividends during 2011?
PROBLEMS
1. The company is granted a charter that authorizes issuance of 15,000 shares of $100 par value preference shares and
40,000 shares of no-par ordinary shares.
2. 8,000 ordinary shares are issued to the founders of the corporation for land valued by the board of directors at $300,000.
The board establishes a stated value of $5 a share for the ordinary shares.
3. 5,000 preference shares are sold for cash at $120 per share.
4. The company issues 100 ordinary shares to its attorneys for costs associated with starting the company. At that time, the
ordinary shares were selling at $60 per share.
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Instructions
The original sale of the $50 par value ordinary shares of Gray Company was recorded as follows:
Cash............................................................................................................................. 290,000
Instructions
Record the treasury share transactions (given below) under the cost method:
Transactions:
Equity
$5,850,000
1. Jan. 5 10,000 shares of authorized and unissued ordinary shares were sold for $8 per share.
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2. Jan. 16 Declared a cash dividend of 20 cents per share, payable February 15 to share-holders of record on February
5.
3. Feb. 10 20,000 shares of authorized and unissued ordinary shares were sold for $12 per share.
4. March 1 A 30% share dividend was declared and issued. Fair value per share is currently $15.
5. April 1 A two-for-one split was carried out. The par value of the shares was to be reduced to $2.50 per share. Fair
value on March 31 was $18 per share.
6. July 1 A 15% share dividend was declared and issued. Fair value is currently $10 per share.
7. Aug. 1 A cash dividend of 20 cents per share was declared, payable September 1 to stockholders of record on
August 21.
Instructions
Enter the above events into the following work sheet showing how each event affects the column. Event No. 1 will serve as an
example.
Share Capital—Ordinary
Foley Corporation has the following capital structure at the beginning of the year:
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Share premium—ordinary 110,000
Instructions
(a) Record the following transactions which occurred consecutively (show all calculations).
1. A total cash dividend of $90,000 was declared and payable to shareholders of record. Record dividends payable on
ordinary and preference shares in separate accounts.
2. A 10% ordinary share dividend was declared. The average fair value of the ordinary shares is $18 a share.
3. Assume that net income for the year was $150,000 (record the closing entry) and the board of directors appropriated
$70,000 of retained earnings for plant expansion.
(b) Construct the equity section incorporating all the above information.
Instructions
How much will the preference and ordinary shareholders receive under each of the following assumptions:
1. Barker Corp. received a charter authorizing 120,000 shares of common stock at $15 par value per share. During the
first year of operations, 40,000 shares were sold at $28 per share. 600 shares were issued in payment of a current operating
debt of $18,600. In the first year, the net income was $142,000.
During the year, dividends of $36,000 were paid to stockholders. At the end of the year, total liabilities were $82,000. Use the
given data to compute the following items at the end of the first year (show all computations):
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(1) Total liabilities and stockholders' equity
2. The following transactions relate to the stockholders' equity transactions of Lindsay Corporation for its initial year of existence.
(a) Jan. 7 Articles of incorporation are filed with the state. The state authorized the issuance of 10,000
shares of $50 par value preferred stock and 200,000 shares of $10 par value common stock.
(b) Jan. 28 40,000 shares of common stock are issued for $14 per share.
(c) Feb. 3 80,000 shares of common stock are issued in exchange for land and buildings that have an
appraised value of $250,000 and $1,000,000, respectively. The stock traded at $15 per share
on that date on the over-the-counter market.
(d) Feb. 24 2,000 shares of common stock are issued to Shane and Winston, Attorneys-at-Law, in
payment for legal services rendered in connection with incorporation. The company charged
the amount to organization costs. The market value of the stock was $16 per share.
(e) Sep. 12 Received subscriptions for 10,000 shares of preferred stock at $53 per share. A 40 percent
down payment accompanied the subscriptions. The balance is due on October 1.
Prepare journal entries to record the foregoing transactions. Identify the entries by letter (a - f).
3. On August 10, Jameson Corporation reacquired 8,000 shares of its $100 par value common stock at $134. The stock was
originally issued at $110. The shares were resold on November 21 at $145.
Provide the entries required to record the reacquisition and the subsequent resale of the stock using the:
4. The data below are from the December 31, 2005, balance sheet of the Handi Corner Corporation:
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Common stock, $50 par, 3,000 shares issued and
During 2006, the following transactions affecting corporate capital were recorded:
Assuming the cost method is used for treasury stock and that retained earnings are to be reduced minimally in stock
reacquisition transactions, provide the entries required to record the above transactions.
5. The Perry Company wants to raise additional equity capital. The company decides to issue 5,000 shares of $25 par preferred
stock with detachable warrants. The package of the stock and warrants sells for $105. Each warrant enables the holder to
purchase two shares of $10 par common stock at $30 per share. Immediately following the issuance of the stock, the stock
warrants are selling at $14 each. The market value of the preferred stock without the warrants is $96.
(1) Prepare a journal entry for Perry Company to record the issuance of the preferred stock and the
detachable warrants.
(2) Assuming that all the warrants are exercised, prepare a journal entry for Perry to record the exercise
of the warrants.
(3) Assuming that only 70 percent of the warrants are exercised, prepare a journal entry for Perry to
record the exercise and expiration of the warrants.
6. Bennett Company paid cash dividends totaling $150,000 in 2003 and $75,000 in 2004. In 2005, Bennett intends to pay cash
dividends of $800,000. Compute the amount of cash dividends per share to be received by common stockholders in 2005 under
each of the following assumptions. Treat each case independently. There were no dividends in arrears as of January 1, 2003.
(1) 25,000 shares of common; 100,000 shares of 6 percent, $50 par cumulative preferred.
(2) 25,000 shares of common; 50,000 shares of 6 percent, $50 par noncumulative preferred.
(3) 25,000 shares of common; 70,000 shares of 6 percent, $100 par cumulative preferred.
7. On January 1, 2005, the records of the Gerrard Corporation showed these balances:
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Common stock--authorized 78,000 shares at $100 par;
July 1, 2005 Declared stock dividend (from unissued stock) of 1 share for each 2 shares outstanding, issued
September 1. (Prior to the declaration, the market value of the unissued stock was $115 per
share.)
June 1, 2006 Declared stock dividend (from unissued stock) of 1 share for each 10 shares outstanding,
issued August 1. (Prior to the declaration, the market value of the unissued stock was $120
per share.)
Provide the entries to record the declaration and payment of the stock dividends during 2005 and 2006.
8. Upon organization on January 1, 2005, Okra Inc. was authorized to issue 200,000 shares of $10 par common stock in multiples
of 100 shares. During 2005, 110,000 shares were sold at $65 per share; 6,000 shares were later reacquired as treasury stock at
$72 per share. A stock split of 2-for-1 on all issued shares was approved on December 31, 2005.
• Property dividend of 1 share of Hall Co. common stock for each 10 shares of Okra stock
held. The cost to the company for 1 share of Hall Co. common stock was $25 with a
current market value
of $30.
Provide the entries to record the declaration and payment of the dividends on December 4, 2006.
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9. During 2005, the following transactions related to the capital stock of the Buffet-Line Corp. occurred:
March 4 Declared a $.50 cash dividend on 200,000 shares of common stock with a $20 par value.
July 9 Purchased 12,000 shares of Buffet-Line's own common stock at $32 per share; acquisition recorded
at cost.
Sept. 10 Declared a cash dividend of $.40 per share on common stock outstanding.
Complete the following table to depict the number of shares of stock and balances in the stockholders' equity accounts after
each of the following transactions. Each situation is to be considered independently of the others.
(c) 100 percent stock dividend, market value $25 per share
(a)
(b)
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(c)
11. The following information pertains to log Corp. for the year ended September 30, 2005:
pretax ...............................................
Prepare a statement of retained earnings for Rondo Corp. for the year ended September 30, 2005.
12. On July 23, Tinbabe Company declared a cash dividend totaling $80,000. Stockholders were notified that $15,000 of this
dividend represented a liquidating dividend. At the time, the balance in Paid-In Capital in Excess of Par was $113,000.
Make the journal entries to record (1) the declaration and (2) the payment of this dividend.
13. Indicate how each of the following transactions would be reflected in a statement of cash flows:
(2) A 10 percent stock dividend declared and distributed during the year.
(3) A 50 percent stock dividend declared and distributed during the year.
14. On January 1, 2005, Thomas Company granted its 20 top executives stock options to acquire 6,000 shares of $10 par value
common stock for $15 per share in the year commencing January 1, 2008. The market price of Thomas stock is $20 on the date
of the grant. The executives must remain in the employ of the company only until December 31, 2006, to retain their options.
The market price of the stock is $20, $25, and $26 on December 31, 2005, 2006, and 2008, respectively. On January 1, 2008,
options equivalent to 5,200 shares are exercised, with no other exercises of options during the year.
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Prepare the journal entries necessary on January 1, 2005, December 31, 2005, December 31, 2006, and during the year
beginning January 1, 2008.
15. The accounts from the stockholders' equity section of the balance sheet of Western Company showed the following at
December 31, 2004:
Western issued 475,000 shares of the $1 par value common stock on January 1, 2004.
The company also is authorized to issue 500,000 shares of $5 par value, 6% preferred stock.
Jan. 10 Issued an additional 90,000 shares of common stock at $17 per share.
July 19 The board of directors authorized the appropriation of $295,000 of retained earnings for the
purchase of equipment.
Dec. 31 Net income for the year was $1,200,000. The board of directors declared a dividend of $623,000 to
stockholders of record on January 15, 2006, to be paid on February 1, 2006.
Prepare a statement of changes in stockholders' equity for 2005 using the information given above.
17. The following amounts were taken from the income statement of LFM Company for the year ending December 31, 2005:
Revenues $1,800,000
Expenses 1,000,000
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Income from operations $ 50,000
In addition, LFM reported the following items (all items are before taxes):
18. The following amounts were taken from the income statement of LFM Company for the year ending December 31, 2005:
Revenues $1,800,000
Expenses 1,000,000
In addition, LFM reported the following items (all items are before taxes):
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Foreign currency translation adjustment, increase (decrease)
Problem 18
The Carver Company began a performance-based employee stock option plan on
January1, 2001. The performance base for the plan is net sales in the year 2003.The
plan provides for stock options to be awarded to employees as a group on the
following basis:
The options are exercisable on January 1, 2004. The option exercise price is $20
per share. On January 1, 2001, each option had a fair value of $12. The market
prices of Carver stock on selected dates in 2001 through 2003 were:
January 1, 2001 $30
December 31, 2001 $35
December 31, 2002 $40
December 31, 2003 $36
Calculate the compensation expense Carver should report for the years 2001, 2002,
and 2003 related to the option plan under the:
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Problem 13
The balance sheet below was prepared for the Cardenas Corporation just prior to a quasi-reorganization:
Cardenas Corporation
Balance Sheet
Assets
Land........….................................................................................................................................... 200,000
On August 15, 2002, the stockholders approved a reorganization plan with these provisions:
Gross buildings and equipment are to be adjusted to their current value of $1,100,000; the accumulated
depreciation is to reflect 40 percent depreciation on the revised value.
The capital stock is to be reduced to a par value of $20 per share.
The deficit is to be applied to the paid-in capital in excess of par on capital stock; any excess is to be charged to
the paid-in capital from the reduction in value assigned to the capital stock created by the restatement of
capital stock.
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Problem 12
The board of directors of Logan Piano Co. decided that the company should undergo a quasi-reorganization effective on
December 31, 2002. On that date, the company determined the following asset values.
$435,000 $295,000
Common stock, $25 par, 25,000 shares issued and outstanding..................................................... $625,000
Total……………………………………………………………… $650,000
The quasi-reorganization is to be accomplished by reducing the par value of the stock to $20 per share.
(3) Prepare the journal entry to record the elimination of the deficit.
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