Question 1 -
Loki Corporation earned net income of $70,000 during the year ended December 31 2016. On December 15, Loki had declared the annual cash dividend on its $0.50 preferred shares (10,000 shares issued for $100,000) and a $0.60 per share cash dividend on its common shares (25,000 shares issued for $50,000). Loki then paid the dividends on January 4, 2017.
Journalize the following for Loki Corporation:
1. Declaring the cash dividends on December 15, 2016.
2. Paying the cash dividends on January 4, 2017.
Did Retained Earnings increase or decrease during 2016? If so, by how much?
Question 2 -
IMA Believer Corp's balance sheet reported the following shareholders' equity as of December 31, 2016:
Share Capital:
Preferred shares, $100 stated value; $5 cumulative, 10,000 shares authorized, 10,000 issued - $1,000,000
Common shares 200,000 shares authorized, 50,000 shares issued - 500,000
Total share capital - $2,500,000
Retained earnings - 500,000
Total shareholders' equity - $3,000,000
Assuming there are 3 years' dividends in arrears (including that of the current year), determine (1) preferred equity and (2) book value per share of common shares.
Question 3 -
Settlers of Catan Co is authorized to issue an unlimited number of common shares and 10,000 preferred shares. During its first year, the business completed the following share issuance transactions:
- July 19: Issued 10,000 common shares for cash of $6.50 per share.
- Oct 3: Issued 500, $1.50 preferred shares for $50,000 cash.
- Oct 11: Received inventory valued at $11,000 and equipment with fair value of $8,500 for 3,300 common shares.
Journalize the transactions. Explanations are not required.
Prepare the shareholders' equity section of Settlers of Catan Co's balance sheet. The ending balance of Retained Earnings is a deficit of $42,000.
Question 4 -
Given the following information for Victory Stables, calculate their return on assets, and return on equity and comment on the use of these ratios (why would we use them? what do they tell us?).
Net income - $50,000
Interest expense - 8,500
Income tax expense - 15,250
Preferred dividends - 2,500
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Beginning of the Year
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End of the Year
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Current assets
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$62,000
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$82,000
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Current liabilities
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25,000
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55,000
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Plant and equipment
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300,000
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350,000
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Long-term liabilities
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50,000
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75,000
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Common shareholders' equity
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125,000
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225,000
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Preferred shareholders' equity
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60,000
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85,000
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Question 5 -
Multigrain Health Foods Inc. is authorized to issue 5,000,000 common shares. In its initial public offering during 2010, Multigrain issued 500,000 common shares for $7.00 per share. Over the next year, Multigrain's share price increased and the company issued 400,000 more shares at an average price of $8.50.
During the next seven years, from 2010 to 2016, Multigrain earned net income of $920,000. They declared and paid cash dividends of $140,000. A 10% stock dividend was distributed to the shareholders in 2016 on the shares outstanding. The market price was $8.00 per share when the stock dividend was distributed. At December 31, 2016, the company has total assets of $14,500,000 and total liabilities of $6,820,000.
Show the computation of Multigrain's total shareholders' equity at December 31, 2016. Present a detailed computation of each element of shareholder's equity.