Assignment
Problem I: Indicate whether each of the following statements is true (T) or false (F).
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a.
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Privately held corporations tend to have more stockholders than publicly held ones.
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b.
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Only individuals may qualify as stockholders.
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c.
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Both public and private corporations are regulated by the Securities and Exchange Commission (SEC).
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d.
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A corporation is not required to pay yearly dividends to its stockholders.
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e.
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Stockholders are held personally liable for debts the corporation incurs but is unable to pay back.
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f.
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An S-corporation is a type of corporation which avoids double taxation and also allows stockholders to receive limited liability.
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g.
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A privately-held corporation automatically qualifies as an S-corporation.
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h.
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A corporation should list its "Treasury Stock" as an asset on its balance sheet.
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i.
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Preferred stock shareholders should always receive a higher dividend per share than common stock shareholders.
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j.
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Treasury shares are entitled to receive their share of dividends declared.
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k.
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Expressed as a percentage of the total outstanding shares, stock dividends result in a shareholder maintaining the same ownership percentage after the stock dividend as the shareholder held before.
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l.
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The amount of dividends-in-arrears on preferred stock should appear in the liability section of the balance sheet.
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m.
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All else being equal, earnings per share is decreased when a company purchases treasury stock.
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n.
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A stock dividend has no effect on the total stockholders' equity balance.
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o.
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The higher a stock's par value, the higher its market value should be.
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Problem II: Each of the following transactions are for the same company. For each transaction, prepare the required journal entry and answer the two questionswhich immediately follow.
A. On 8/1/X4, Oberlin Corp. issued 4,000 shares of $10 par common stock for $28 per share. These are the first shares Oberlin has issued.
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Date
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Account Name
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Debit
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Credit
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8/1/X4
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Question #1: Using the words increase, decrease, or no effect along with the amount, indicate how this transaction affects each component of Oberlin's accounting equation?
Question #2: After the above transaction, how many shares are issued and outstanding as of August 1, 20X4?
B. Continuing with the above, on 10/1/X4, Oberlin Corp. bought back 600 shares of its $10 par common stock for $30 per share. Oberlin uses the cost method to account for its treasury stock.
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Date
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Account Name
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Debit
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Credit
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10/1/X4
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Question #1: Using the words increase, decrease, or no effect along with the amount, indicate how this transaction affects each component of Oberlin's accounting equation? Note: "no effect" must be indicated where appropriate.
Question #2: How many shares are issued and outstanding as of October 1, 20X4?
Problem III: The stockholders' equity section ofPreston Inc.'s balance sheet at 12/31/X4 is as follows:
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Common stock:
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$5 par, 400,000 shares authorized, 300,000 shares issued, and 275,000 shares outstanding
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$1,500,000
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Paid-in capital in excess of par
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1,000,000
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Total paid-in capital
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2,500,000
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Retained earnings
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5,000,000
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Less: Treasury stock: 25,000 shares
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( 250,000)
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Total stockholders' equity
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$7,250,000
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Required: Using the above information, answer the following three questions:
Question #1: Assume Preston declares a cash dividend of $.50 per share on 5/1/X4 payable on 6/15/X4. In the space below, prepare the journal entry on the declaration date and the subsequent payment date.
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Date
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Account Name
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Debit
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Credit
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5/1/X4
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6/15/X4
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Question #2: Using the words increase, decrease, or no effect along with the amount, indicate how the 5/1/X4 transaction (dividend declaration) affects each component of Preston's accounting equation?
Question #3: Using the words increase, decrease, or no effect along with the amount, indicate how the 6/15/X4 transaction (dividend payment) affects each component of Preston's accounting equation?
Problem IV: Wolfpack Inc. has the following information available at 12/31/X4.
- Common Stock: $10 par value, 200,000 shares issued and outstanding.
- Preferred Stock: $75 par, 8%, 100,000 shares issued and outstanding.
Additional information: The preferred stock is cumulative and no dividends were paid in the prior year (20X3). A total dividend of $1,500,000 is declared and paid in 20X4.
Question: What portion of the $1,500,000 total dividend should be allocated to the preferred and common shares? Complete the following chart below with your answers.
Problem V: On February 1, 20X4,Lassiter Corp. has200,000 shares of $1 par common stock outstanding before it declares a 5% stock dividend. The market price per share is $65 on the declaration date.
A. How many shares will the company distribute as a stock dividend?
B. What will be the value of the shares distributed as a dividend?
C. What will be the journal entry to record the issuance of this stock dividend? Assume the stock dividend is declared and distributed on the same day.
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Date
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Account Name
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Debit
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Credit
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2/1/X4
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Problem VI: On February 1, 20X4,Kane Enterprises Inc. had 400,000 shares of $6 par common stock issued and outstanding before it declared a 2:1 stock split. The market price of Kane's stock immediately before the split was $200 per share.
Required: The chart below summarizes Kane's stock information immediately before the split. Complete the chart for Kane's stock information immediately after the split.
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# of Shares
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Par Value per share
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Total Par Value
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Market price per share
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Before split
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400,000
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$6
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$2,400,000
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$200
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After 2:1 split
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Problem VII: What does the return on common stockholders' equity (ROE) ratio measure? (1-2 sentences)
A. The stockholders' equity section of Apple Inc.'s consolidated balance sheet is shown in Appendix A (page A-3) of your textbook. Its consolidated income statement is shown on page A-2.
Using its financial statements, answer the following questions:
*Note: Page references refer to the page numbers shown at the top of Apple's annual report.
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Page Reference*
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a.
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A-3
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Question: How many shares of common stock were authorized at 9/27/14 and 9/28/13, respectively?
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b.
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A-3
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Question: How many shares of common stock were issued and outstanding at 9/27/14 and 9/28/13, respectively?
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c.
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A-3
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Question: Does Apple have any preferred stock issued and outstanding at either 9/27/14 or 9/28/13?
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d.
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A-2 and A-3
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Question: What was Apple's return on common stockholders' equity (ROE) at 9/27/14?
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Problem VIII: Briefly list four common reasons why a corporation might back its own stock.