PROBLEM 20.1B
Year
Case A
All dividends to Preferred 2013
All dividends to Preferred 2014
5% to Pref.—balance to Common 2015
Case B
($32,000 in arrears to Preferred)
All dividends to Preferred 2014
($32,000 in arrears to Preferred
5% preference plus $32,000 in 2015
arrears to Preferred—balance
to Common
Computation of 2015 dividend:
8.80480,000 128,000 4.00 352,000
− 0 −96,000 96,000 3.00 − 0 −
96,000 3.00 384,000
Preferred Stock Common Stock
Total Per Share
9.60
96,000 96,000 3.00 − 0 −
$2.00 $ − 0 −
− 0 −
480,000
Total Per Share
Total
Dividends
$ − 0 −$64,000 $64,000
Computation
of
2015
dividend:
In arrears from 2014
2015 Preferred dividend
Totals
Analyze: The total dividends for Case B would be $14,400.
2013 (1,600 shares x $2) = $3,200
2014 (1,600 shares x $3) = $4,800
2015 (1,600 shares x $4) = $6,400
$14,400
96,000 3.00
$8.80$128,000 $4.00 $352,000
$32,000 $1.00
PROBLEM 20.2B
PART I
1. All $168,000 to preferred for dividends in arrears $168,000
3. None available to common stockholders
PART II
1. $384,000 to preferred stockholders:
2. $384,000 ÷ 24,000 shares = $16 per share
3. Total dividends paid $960,000
5. None. Preferred dividends paid up to date.
PROBLEM 20.3B
PAGE
POST.
REF.
1 2013 1
2 Dec. 31 Toy Chest Corporation has been organized to sell toys. 2
3 It is authorized to issue 2,000 shares of noncumulative 3
4 and nonparticipating 12% preferred stock with a par 4
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.4B
PAGE
POST.
REF.
1 2013 1
2 June 5 Cash 58 4 0 0 00 2
11 Travel Agency to Rosa Davis 11
12 12
13 5 Cash 40 0 0 0 00 13
14 Common Stock 40 0 0 0 00 14
15 Issued 4,000 shares of common stock for cash, 15
16 at stated value 16
17 17
22 22
23 23
24 24
25 25
26 26
27 27
28 28
29 29
30 30
31 31
32 32
33 33
34 34
35 35
36 36
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.4B (continued)
Current Assets
Cash 12840000
Accounts Receivable 11200000
Total Current Liabilities 4240000
Stockholders’ Equity
Preferred Stock ($2 per-share dividend, $ 25 par value;
20,000 shares authorized, 1,200 shares issued at par) 3000000
Analyze
:
The total stockholders’ equity as of June 5, 2013 is $442,000.
Delta Travel Agency
Balance Sheet
June 5, 2013
Assets
PROBLEM 20.5B
PAGE
POST.
REF.
1 2013 1
12 12
13 3 Cash 101 75 0 0 0 00 13
14 Preferred Stock 311 75 0 0 0 00 14
15 Issued 1,500 shares of preferred stock at par 15
16 for cash 16
27 Subscription from Nora Barnett for 500 shares 27
28 of common stock at $12 per share 28
29 29
30 14 Subscriptions Receivable—Preferred Stock 115 27 0 0 0 00 30
31 Preferred Stock Subscribed 312 25 0 0 0 00 31
GENERAL JOURNAL 1
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.5B (continued)
PAGE
POST.
REF.
1 2013 1
2 Jan. 17 Cash 101 300000 2
12 27 Cash 101 3 0 0 0 00 12
13 Subscriptions Receivable—Common Stock 114 3 0 0 0 00 13
14 Payment in full of Nora Barnett’s subscription 14
15 15
20 20
21 21
22 22
GENERAL JOURNAL 2
DESCRIPTIONDATE DEBIT CREDIT
PROBLEM 20.5B (continued)
ACCOUNT Cash ACCOUNT NO.
2013
24 J2 13500 00 12430000
27 J2 3000 00 12730000
ACCOUNT Subscriptions Receivable—Common Stock
2013
ACCOUNT Subscriptions Receivable—Preferred Stock ACCOUNT NO.
2013
GENERAL LEDGER
101
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
114
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
115
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
PROBLEM 20.5B (continued)
ACCOUNT Common Stock ACCOUNT NO.
2013
ACCOUNT Common Stock Subscribed ACCOUNT NO.
2013
ACCOUNT Paid-in Capital in Excess of Par Value—Common ACCOUNT NO.
2013
ACCOUNT Preferred Stock ACCOUNT NO.
2013
Jan. 3 J1 7500000 7500000
311
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
CREDIT
305
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT CREDIT
CREDIT
302
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT
GENERAL LEDGER
301
DATE DESCRIPTION
POST.
REF. DEBIT CREDIT
BALANCE
DEBIT
PROBLEM 20.5B (continued)
ACCOUNT Preferred Stock Subscribed ACCOUNT NO.
ACCOUNT Paid-in Capital in Excess of Par Value—Preferred ACCOUNT NO.
2013
Jan. 14 J1 200000 200000
Stockholders’ Equity
Preferred Stock (8%, $50 par value, noncumulative,
nonparticipating, 18,000 shares authorized)
At Par Value (1,500 shares issued) 75 0 0 0 00
312
CREDIT
DEBIT CREDIT
BALANCE
GENERAL LEDGER
DATE DESCRIPTION
POST.
REF. DEBIT
DEBIT CREDIT
BALANCE
DEBIT CREDIT
Pet Palace Corporation
Balance Sheet (Partial)
January 31, 2013
315
DATE DESCRIPTION
POST.
REF.
CRITICAL THINKING PROBLEM 20.1
1. a. 10,108 shares ($252,700 ÷ $25 per share)
b. 2,640 shares ($66,000 ÷ $25 per share)
f. None. The preferred stock is noncumulative. If the preference dividend is not paid in a year,
the preferred shareholders simply lose the dividends for that year.
g. $35.45 per share ($93,600 ÷ 2,640 shares)
Common Stock Subscribed $66,000
CRITICAL THINKING PROBLEM 20.1 (continued)
2.
Current Assets
Cash 42 4 0 0 00
Property, Plant, and Equipment
Furniture and Fixtures 50 0 0 0 00
Building 200 0 0 0 00
Total Property, Plant, and Equipment 250 0 0 0 00
Total Assets 552 3 0 0 00
Current Liabilities
Accrued Expense Payable 10 0 0 0 00
Accounts Payable 80 0 0 0 00
Liabilities and Stockholders’ Equity
Videos Unlimited, Inc.
Balance Sheet
September 1, 2013
CRITICAL THINKING PROBLEM 20.2
1. Preferred dividends per share = $75 par value × 0.08 = $6
Total preferred dividends = $6 × 80,000 shares = $480,000
6. Total dividends $2,550,000
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1. Personal liability, taxation, and transferability of stock.
3. Difficulty of sale of preferred stock, bond interest payments, dividends.
Ethical Dilemma:
This action borders on unethical. Sally should not receive stock options if she has any control over
Financial Statement Analysis:
1. 17.16% (1.716 billion ÷ 10 billion)
Teamwork:
Internet Connection:
Part A True-False
1. FALSE
3. TRUE
5. FALSE
7. FALSE
9. FALSE
11. FALSE
13. FALSE
15. FALSE
17. FALSE
19. TRUE
Part B Completion
2. preferred stock
4. charter
6. capital stock transfer
8. stock certificate
10. capital stock ledger
SOLUTIONS TO PRACTICE TEST