CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–4B
1. and 2.
Jan. 1 Bal. 3,100,000
Apr. 13 1,000,000
July 16 123,000
Dec. 31 Bal. 4,223,000
Jan. 1 Bal. 1,240,000
Apr. 13 600,000
June 14 61,500
Dec. 31 Bal. 1,901,500
Mar. 15 36,000
July 16 123,000 June 14 123,000
Common Stock
Paid-In Capital in Excess of Stated Value—Common Stock
Paid-In Capital from Sale of Treasury Stock
Stock Dividends Distributable
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–4B (Continued)
2.
Jan. 15 Cash Dividends Payable 34,320
[(620,000 shares – 48,000 shares) × $0.06]
Cash 34,320
Apr. 13 Cash (200,000 shares × $8) 1,600,000
Common Stock (200,000 shares × $5) 1,000,000
Paid-In Capital in Excess of Stated Value— 600,000
Common Stock [200,000 shares × ($8 – $5)]
July 16 Stock Dividends Distributable 123,000
Common Stock 123,000
Oct. 30 Treasury Stock (50,000 shares × $6) 300,000
Cash 300,000
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–4B (Concluded)
Retained earnings, January 1, 2016 $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
Excess of issue price over stated value 1,901,500
Stockholders’ Equity
NAV-GO ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2016
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–5B
Jan. 15 No entry required. The stockholders’ ledger would be revised to record the
increased number of shares held by each stockholder and new par value.
Mar. 1 Cash Dividends [(100,000 shares × $0.25) + 81,000
(800,000 shares × $0.07)]
Cash Dividends Payable 81,000
Sept. 1 Cash Dividends {(100,000 shares × $0.25) + 95,200
[(800,000 shares – 60,000 shares +
40,000 shares) × $0.09]}
Cash Dividends Payable 95,200
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–1
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
CEO, with this loan being cited as part of the reason. The board indicated that
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.
Yet that’s the level to which fiduciary responsibility seems to have sunk on
the board of Clinton, Mississippi-based WorldCom, the deeply troubled
CASES & PROJECTS
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–1 (Concluded)
best one by far—at least from the point of view of the shareholders—was to
CP 13–2
Lou and Shirley are behaving in a professional manner as long as full and
CP 13–3
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 sales
and $120 per share payment obligations in the notes to the financial statements.
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–4
a. 500 shares × ($1.12 ÷ 4) = $140
b. 1.41% = ($38.13 – $37.60) ÷ $37.60
c. 45.2% = ($38.13 – $26.26) ÷ $26.26
CP 13–5
1. Before a cash dividend is declared, there must be sufficient retained earnings
and cash. On December 31, 2016, the retained earnings balance of $4,630,000
is available for use in declaring a dividend. This balance is sufficient for the
payment of the normal quarterly cash dividend of $0.50 per share, which would
3.5:1 ($7,000,000 ÷ $2,000,000) on December 31, 2016. However, after deducting
the $3,000,000 committed to store modernization and product-line expansion,
the ratio drops to 2:1 ($4,000,000 ÷ $2,000,000). If the cash dividend were
2. Given the cash and working capital position of Motion Designs Inc. on
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–5 (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
b. From the point of view of the board of directors, a stock dividend would
continue the dividend trend, while the cash and working capital position
of the company would not be jeopardized. Many corporations use stock
CP 13–6
Note to Instructors: The purpose of this activity is to familiarize students with
1. Google Inc.
3. The following excerpts are taken from Google’s 10-K:
“Google is a global technology leader focused on improving the ways people
connect with information. We aspire to build products that improve the lives
CP 13–6 (Continued)
5. $50,175,000,000
7. 100,000,000 authorized shares of convertible preferred stock with a par of
$0.001; no shares issued or outstanding
3,000,000,000 authorized shares of Class B common stock with a par value of
$0.001; no shares issued or outstanding
Classes A, B, and C have the same rights except for voting. Class A stock has
one vote per share; Class B stock has 10 votes per share; Class C stock has no
8. $1,059.59 as of close on November 29, 2013.
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
10. Google Inc. does not pay cash dividends. In its SEC 10-K filing for the year ending
December 31, 2012, Google states:
“We have never declared or paid any cash dividend on our common stock. We
intend to retain any future earnings and do not expect to pay any cash dividends
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