QUIZ 7 – FINANCIAL ACCOUNTING – FALL 2023

SOLUTION
Question: (1.5 MARKS)

Nippon steel has 50,000 shares of 8%, $50 par value, cumulative preferred stock outstanding. The
company has not paid dividends in 2015 and 2016. The company declares a dividend of $350,000 in
2017. Find the amounts of dividends paid and to be paid to preference shareholders. Bifurcate the
amounts year wise.

Preference Shareholder’s Dividend for 1 year = (50,000 x 8% x 50) 200,000

2015 200,000
2016 200,000
2017 200,000

Declared = 350,000
Paid To Be Paid
2015 200,000 0
2016 150,000 50,000
2017 0 200,000

Question: (1.5 MARKS)

Dell has 20,000 shares of 4%, $100 par value preferred stock outstanding at 31 st Dec 2017. The company
declared a $750,000 cash dividend. Determine the dividend paid to preferred stockholders and common
stockholders under each of the following scenarios.

I. The preferred stock is noncumulative, and the company has not missed any dividends in previous
years.
II. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two
previous years.
III. The preferred stock is cumulative, and the company did not pay a dividend in each of the two
previous years.

Preference Shareholders Common Shareholders

I) 80,000 670,000
II) 80,000 670,000
III) 240,000 510,000
Question: Make the necessary entry or write no entry needed where not required.

(0.5 MARKS EACH)

Tesla has increased its authorized capital to 1,000,000.

NO ENTRY NEEDED FOR AUTHORIZED CAPITAL

Microsoft issues 4,000 shares of $2.5 par value common stock at par for cash.

Cash (4000 x 2.5) 10,000

Share Capital 10,000

Toyota issues 500 shares of $3 par value common stock for cash at $4 per share.

Cash (500 x 4) 2,000

Share Capital (500 x 3) 1,500
Share Premium (500 x 1) 500
JP Morgan issues 7500 shares of $8 par value preferred stock for $10 cash per share.

Cash (7,500 x 10) 75,000

Preference Share Capital (7,500 x 8) 60,000
Preference Share Premium (7,500 x 2) 15,000

Amazon issues 4,000 shares of $10 par value common stock to attorneys in settlement of their bill of
$50,000 for legal costs.

Legal Expense 50,000

Share Capital (4000 x 10) 40,000
Share Premium 10,000
Meta has 200,000 shares of $10 par value common stock outstanding. The company acquires 80,000
shares of its stock at $7 per share.

Treasury Stock (80,000 x 7) 560,000

Cash 560,000

Google sells 2,000 shares of the 6,000 shares of its treasury stock (bought at $17 per share) for $25 per
share.

Cash (2,000 x 25) 50,000

Treasury Stock (2,000 x 17) 34,000
Paid-in-capital Treasury Stock (2,000 x 8) 16,000
Google sells the remaining shares of its treasury stock for $17.

Cash (4,000 x 17) 68,000

Treasury Stock 68,000
Ford Motors sells 1,000 shares of the 10,000 shares of its treasury stock (bought at $17 per share) for
$15 per share.

Cash (1,000 x 15) 15,000

Paid-in-capital Treasury Stock 2,000
Treasury Stock (1,000 x 17) 17,000

(adjustment through debiting retained earning will also be considered as correct)

Hp has 200,000 shares outstanding. The par value per share is $10. The company has decided for a 3-
for-1 split.

NO ENTRY NEEDED – A MEMO ENTRY IS PASSED TO INDICATE SPLIT AND CHANGE OF PAR VALUE

Samsung had 500,000 shares of $10 par value stock outstanding. The company declared and issued a
stock dividend of 15%. The market price per share on the date of declaration was $14.

Retained Earnings (500,000 x 15% x 14) 1,050,000

Share Capital (500,000 x 15% x 10) 750,000
Share Premium (500x000 x 15% x (14-10)) 300,000
General Motors had 2,000,000 shares of $1 par value stock outstanding. The company declared and
issued stock dividend of 40%. The market price per share on year end was $4 and on the date of
declaration was $5.

Retained Earnings (2,000,000 x 40% x 1) 800,000

Share Capital 800,000

Hyundai discovers in 2018 that it overstated depreciation expense on plant in 2016 by $150,000.

Accumulated Depreciation – Plant 150,000

Retained Earnings 150,000
Hp has 100,000 shares outstanding. The par value per shares is $10. The company has decided for a
100:1 reverse stock split.

NO ENTRY NEEDED – A MEMO ENTRY IS PASSED TO INDICATE # OF OUTSTANDING SHARES HAVE

DECREASED