Chapter 12

Fiji Inc., a developer of radiology equipment, has stock outstanding as follows: 25,000 shares of \(1 \%\) nonparticipating, cumulative preferred stock of \(\$ 100\) par, and 250,000 shares of \(\$ 50\) par common. During its first five years of operations, the following amounts were distributed as dividends: first year, none; second year, \(\$ 40,000\); third year, \(\$ 80,000\); fourth year, \(\$ 120,000\); fifth year, \(\$ 140,000\). Calculate the dividends per share on each class of stock for each of the five years.

Infinity.com, a software development firm, has stock outstanding as follows: 100,000 shares of \(2 \%\) cumulative, nonparticipating preferred stock of \(\$ 20\) par, and 50,000 shares of \(\$ 100\) par common. During its first five years of operations, the following amounts were distributed as dividends: first year, none; second year, \(\$ 45,000\); third year, \(\$ 110,000\); fourth year, \(\$ 130,000\); fifth year, \(\$ 180,000\). Calculate the dividends per share on each class of stock for each of the five years.

On July 7, Sloth Inc., a marble contractor, issued for cash 40,000 shares of \(\$ 25\) par common stock at \(\$ 40\), and on October 20 , it issued for cash 15,000 shares of \(\$ 100\) par preferred stock at \(\$ 120\). a. Journalize the entries for July 7 and October 20 . b. What is the total amount invested (total paid-in capital) by all stockholders as of October 20?

On February 20, Mudguard Corp., a carpet wholesaler, issued for cash 100,000 shares of no-par common stock (with a stated value of \(\$ 10\) ) at \(\$ 15\), and on April 30 , it issued for cash 4,000 shares of \(\$ 25\) par preferred stock at \(\$ 30\). a. Journalize the entries for February 20 and April 30 , assuming that the common stock is to be credited with the stated value. b. What is the total amount invested (total paid-in capital) by all stockholders as of April 30?

Megaton Corp., an electric guitar retailer, was organized by Bonita Eaves, Helen Brock, and Freida Sager. The charter authorized 400,000 shares of common stock with a par of \(\$ 10\). The following transactions affecting stockholders equity were completed during the first year of operations: a. Issued 5,000 shares of stock at par to Brock for cash. b. Issued 200 shares of stock at par to Eaves for promotional services provided in connection with the organization of the corporation, and issued 1,200 shares of stock at par to Eaves for cash. c. Purchased land and a building from Sager. The building is mortgaged for \(\$ 180,000\) for 20 years at \(6 \%\), and there is accrued interest of \(\$ 900\) on the mortgage note at the time of the purchase. It is agreed that the land is to be priced at \(\$ 60,000\) and the building at \(\$ 200,000\), and that Sagar's equity will be exchanged for stock at par. The corporation agreed to assume responsibility for paying the mortgage note and the accrued interest. Journalize the entries to record the transactions.

Calvert Products Inc., a wholesaler of office products, was organized on January 5 of the current year, with an authorization of 80,000 shares of \(2 \%\) noncumulative preferred stock, \(\$ 50\) par and 250,000 shares of \(\$ 100\) par common stock. The following selected transactions were completed during the first year of operations: Jan. 5. Issued 10,000 shares of common stock at par for cash. 18\. Issued 100 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation. Feb. 13. Issued 4,250 shares of common stock in exchange for land, buildings, and equipment with fair market prices of \(\$ 50,000, \$ 280,000\), and \(\$ 120,000\), respectively. April 1. Issued 3,500 shares of preferred stock at \(\$ 52\) for cash. Journalize the transactions.

Crystal Springs Inc. bottles and distributes spring water. On June 1 of the current year, Crystal reacquired 2,500 shares of its common stock at \(\$ 60\) per share. On July 8 , Crystal sold 1,500 of the reacquired shares at \(\$ 65\) per share. The remaining 1,000 shares were sold at \(\$ 58\) per share on November 2 . a. Journalize the transactions of June 1 , July 8 , and November 2 . b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. 1 For what reasons might Crystal Springs have purchased the treasury stock?

Geyser Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On March 3 of the current year, Geyser Inc. reacquired 7,500 shares of its common stock at \(\$ 120\) per share. On August \(11,4,000\) of the reacquired shares were sold at \(\$ 130\) per share, and on October \(3,2,500\) of the reacquired shares were sold at \(\$ 124\). a. Journalize the transactions of March 3, August 11, and October 3 . b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. What is the balance in Treasury Stock on December 31 of the current year? d. How will the balance in Treasury Stock be reported on the balance sheet?

Aspen Inc. bottles and distributes spring water. On August 1 of the current year, Aspen Inc. reacquired 12,000 shares of its common stock at \(\$ 36\) per share. On September 23 , Aspen Inc. sold 7,500 of the reacquired shares at \(\$ 38\) per share. The remaining 4,500 shares were sold at \(\$ 33\) per share on December \(29 .\) a. Journalize the transactions of August 1, September 23 , and December \(29 .\) b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? c. Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet? d. 1_. For what reasons might Aspen Inc. have purchased the treasury stock?

Paranormal Corporation wholesales ovens and ranges to restaurants throughout the Midwest. Paranormal Corporation, which had 25,000 shares of common stock outstanding, declared a 5 -for-1 stock split ( 4 additional shares for each share issued). a. What will be the number of shares outstanding after the split? b. If the common stock had a market price of \(\$ 165\) per share before the stock split, what would be an approximate market price per share after the split?

Indicate whether the following actions would \((+)\) increase, \((-)\) decrease, or \((0)\) not affect Indigo Inc.'s total assets, liabilities, and stockholders' equity: (1) Declaring a cash dividend (2) Paying the cash dividend (3) Austhorizing and issuing stock (4) Declaring a stock dividend (5) Issuing stock certificates for the stock dividend declared in (4)

The dates of importance in connection with a cash dividend of \(\$ 120,000\) on a corporation's common stock are February 13, March 15, and April 10. Journalize the entries required on each date.

Health Co. is an HMO for twelve businesses in the Chicago area. The following account balances appear on the balance sheet of Health Co.: Common stock \((250,000\) shares authorized), \(\$ 100\) par, \(\$ 12,500,000\); Paid-in capital in excess of par-common stock, \(\$ 750,000\); and Retained earnings, \(\$ 30,578,000\). The board of directors declared a \(2 \%\) stock dividend when the market price of the stock was \(\$ 110\) a share. Health Co. reported no income or loss for the current year. a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.

Selected transactions completed by Indy Boating Supply Corporation during the current fiscal year are as follows: Feb. 9. Split the common stock 3 for 1 and reduced the par from \(\$ 120\) to \(\$ 40\) per share. After the split, there were 900,000 common shares outstanding. Apr. 10. Declared semiannual dividends of \(\$ 1\) on 12,000 shares of preferred stock and \(\$ 0.05\) on the common stock to stockholders of record on April 20 , payable on May \(1 .\) May 1. Paid the cash dividends. Oct. 12. Declared semiannual dividends of \(\$ 1\) on the preferred stock and \(\$ 0.15\) on the common stock (before the stock dividend). In addition, a \(1 \%\) common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at \(\$ 48\). Nov. 14. Paid the cash dividends and issued the certificates for the common stock dividend. Journalize the transactions.

The following accounts and their balances were selected from the unadjusted trial balance of Sailors Inc., a freight forwarder, at August 31 , the end of the current fiscal year: \(\begin{array}{lr}\text { Preferred 2\% Stock, } \$ 100 \text { par } & \$ 750,000 \\ \text { Paid-In Capital in Excess of Par-Preferred Stock } & 90,000 \\ \text { Common Stock, no par, } \$ 5 \text { stated value } & 562,500 \\ \text { Paid-In Capital in Excess of Stated Value-Common Stock } & 75,000 \\ \text { Paid-In Capital from Sale of Treasury Stock } & 63,750 \\\ \text { Retained Earnings } & 1,875,000\end{array}\) Prepare the Paid-In Capital portion of the Stockholders' Equity section of the balance sheet. There are 200,000 shares of common stock authorized and 80,000 shares of preferred stock authorized.

Big Boy Toys Inc. retails racing products for BMWs, Porsches, and Ferraris. The following accounts and their balances appear in the ledger of Big Boy Toys Inc. on October 31 , the end of the current year: \(\begin{array}{lr}\text { Common Stock, \$4 par } & \$ 600,000 \\ \text { Paid-In Capital in Excess of Par-Common Stock } & 210,000 \\ \text { Paid-In Capital in Excess of Par-Preferred Stock } & 78,000 \\ \text { Paid-In Capital from Sale of Treasury Stock - Common } & 42,000 \\ \text { Preferred 2\% Stock, \$100 par } & 480,000 \\ \text { Retained Earnings } & 3,903,000 \\\ \text { Treasury Stock-Common } & 120,000\end{array}\) Ten thousand shares of preferred and 250,000 shares of common stock are authorized. There are 12,000 shares of common stock held as treasury stock. Prepare the Stockholders' Equity section of the balance sheet as of October 31 , the end of the current year.

Bravo Corporation, a manufacturer of industrial pumps, reports the following results for the year ending July 31,2006 : \(\begin{array}{lr}\text { Retained earnings, August } 1,2005 & \$ 2,213,400 \\\ \text { Net income } & 558,000 \\ \text { Cash dividends declared } & 180,000 \\ \text { Stock dividends declared } & 150,000\end{array}\) Prepare a retained earnings statement for the fiscal year ended July 31, \(2006 .\)

eBay developed a Web-based marketplace at http://www.ebay.com, in which individuals can buy and sell a variety of items. eBay also developed PayPal, an online payments system that allows businesses and individuals to send and receive online payments securely. In a recent annual report, eBay published the following dividend policy: We bave never paid casb dividends on our stock, and currently anticipate that we will continue to retain any future earnings to finance the growtb of our business. Given eBay's dividend policy, why would an investor be attracted to its stock?

In 2002 , Hershey Foods Corporation paid dividends of \(\$ 1.26\) per share to its common stockholders (excluding its Class B Common Stock). The market price of Hershey's common stock on December 31,2002 , was \(\$ 67.44\). a. Determine Hershey's dividend yield on its common stock as of December 31 , \(2002 .\) b. What conclusions can you draw from an analysis of Hershey's dividend yield?