Quiz 8: Accounting for and Presentation of Stockholders Equity

Business

Use a horizontal model to show the effect of transactions: A horizontal model is an arrangement of set of financial statements that encompasses the balance sheet and income statement. In this model, the effect of each transaction on balance sheet and income statement would be displayed. For the given transactions, the horizontal model that shows the effects of the given transactions and adjustments as shown below: img Alternatively, the following journal entries should be prepared: When common stock is issued, Common Stock should be credited for the number of shares issued multiplied by the par value per share. img Additional Paid-In Capital should be credited for the amount of the issue price per share minus the par value per share multiplied by the number of shares issued. img Cash would then be debited for the total amount of cash received from the transaction. img The journal entry to record the issuance of common stock on January 1, 2016 looks like this: img (b)The journal entry to record the declaration of dividends on December 31, 2016 would include a debit to Retained Earnings and a credit to Dividends Payable, and looks like this: img (c)When the dividends are paid , Dividends Payable should be credited and Cash should be debited for the total amount of the dividends paid. The journal entry looks like this: img

Cumulative dividends are one of the preferences given to preferred stockholders. It mandates that any missed dividends to preferred stockholders must be paid before any dividends are paid on common stock. Company S J did not pay dividends on their preferred stock in 2015 or 2016. Before they can issue a cash dividend in 2017 to their common stockholders, they are required to pay cumulative dividends for 2015, 2016, and 2017. In order to calculate the annual dividend amount owed to preferred stockholders, multiply the stated dividend rate by the par value per share of the preferred stock by the total number of shares outstanding. img The total amount of dividends paid for 2015, 2016 and 2017 is calculated as the annual dividend amount multiplied by the number of years. img img Therefore, the answer is $4,987,500.

When a company wants to lower the market price of their stock in order to make it more enticing to potential investors, they often will do so with a stock split. A stock split means that a company will issue additional shares of stock to their existing shareholders, thereby proportionally reducing the value of the shares. (a)A 4-for-1 stock split results in a shareholder owning 4 shares of stock for every 1 share owned. In order to calculate the number of shares owned after the stock split, multiply your current number of shares owned by 4. img (b)The market price of a share of stock after a stock split will be reduced by the proportion of the stock split issued. In a 4-for-1 stock split, the new market price of a share of stock will be reduced by 1/4. This is because the total number of shares of stock has increased by 5 but the total value of the shares of stock has not changed. The new market price per share of stock will be $17 ($68 × 1/4) per share. (c)The par value of a share of stock after a stock split will not change automatically. It is likely that the par value will be treated like the market price per share of stock, and be reduced by 1/4. However, in order for this to happen, it must be voted upon by the corporation's board of directors. The new par value per share of stock will likely be $2.50 img per share.

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There is no answer for this question