1. and 2.
Jan. 1 Bal. 3,100,000
Apr. 13 1,000,000
July 16 123,000
Common Stock
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4B (Continued)
2.
Jan. 15 Cash Dividends Payable [(620,000 shares – 48,000
shares) × $0.06] 34,320
Cash 34,320
Mar. 15 Cash (48,000 shares × $6.75) 324,000
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–4B (Concluded)
Retained earnings, January 1, 2014 $4,875,000
Net income $ 775,000
4.
Paid-in capital:
Common stock, $5 stated value (900,000 shares
authorized, 844,600 shares issued) $4,223,000
Stockholders’ Equity
NAV-GO ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2014
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
Prob. 11–5B
Jan. 15 No entry required. The stockholders’ ledger
would be revised to record the increased
Aug. 17 Cash (40,000 shares × $38) 1,520,000
Treasury Stock (40,000 shares × $32) 1,280,000
Paid-In Capital from Sale of Treasury
Stock [40,000 shares × ($38 – $32)] 240,000
Sept. 1 Cash Dividends {(100,000 shares × $0.25) +
[(800,000 shares – 60,000 shares+ 40,000 shares)
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–1
At the time of this decision, the WorldCom board had come under intense scrutiny.
This was the largest loan by a company to its CEO in history. The SEC began an
investigation into this loan, and Bernie Ebbers was eventually terminated as the
Some press comments:
1. When he borrowed money personally, he used his WorldCom stock as
collateral. As these loans came due, he was unwilling to sell at “depressed
2. It was astonishing to read the other day that the board of directors of the
United States’ second-largest telecommunications company claims to have
had its shareholders’ interests in mind when it agreed to grant more than $430
million in low-interest loans to the company’s CEO, mainly to meet margin
calls on his stock.
CASES & PROJECTS
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–1 (Concluded)
best one by far—at least from the point of view of the shareholders—was to
CP 11–2
Lou and Shirley are behaving in a professional manner as long as full and
CP 11–3
1. This case involves a transaction in which a security has been issued that has
characteristics of both stock and debt. The primary argument for classifying
the issuance of the common stock as debt is that the investors have a legal
right to an amount equal to the purchase price (face value) of the security.
2. In practice, the $25 million stock issuance would probably be classified as
common stock. However, full disclosure should be made of the 5% of net
sales and $120 per share payment obligations in the notes to the financial
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–4
a. 500 shares × ($0.80 ÷ 4) = $100
CP 11–5
1. Before a cash dividend is declared, there must be sufficient retained earnings
and cash. On December 31, 2014, the retained earnings balance of $4,630,000
is available for use in declaring a dividend. This balance is sufficient for the
Other factors that should be considered include the company’s working capital
(current assets – current liabilities) position and the loan provision pertaining
to the current ratio, resources needed for plant expansion or replacement of
facilities, future business prospects of the company, and forecasts for the
2. Given the cash and working capital position of Motion Designs Inc. on
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–5 (Concluded)
a. From the point of view of a stockholder, the declaration of a stock
dividend would continue the dividend declaration trend of Motion Designs
Inc. In addition, although the amount of the stockholders’ equity and
CP 11–6
Note to Instructors: The purpose of this activity is to familiarize students with
sources of information about corporations and how that information is useful in
evaluating the corporation’s activities.
CP 11–6 (Continued)
7. Convertible preferred stock, $0.001 par value, 100,000 shares authorized; no
shares issued and outstanding.
Class A and Class B common stock and additional paid-in capital, $0.001 par value
per share: 9,000,000 shares authorized; 321,301 (Class A 250,413, Class B 70,888)
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CHAPTER 11 Corporations: Organization, Stock Transactions, and Dividends
CP 11–6 (Concluded)
10. Google Inc. does not pay dividends. In its SEC 10-K filing for the year ending
December 31, 2011, Google states:
“We have never declared or paid any cash dividend on our common stock. We
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