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
Jan. 1 Bal. 1,240,000
Common Stock
Paid-In Capital in Excess of Stated Value—Common Stock
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–4B (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
Treasury Stock (48,000 shares × $6.00) 288,000
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
Prob. 13–4B (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
Stockholders’ Equity
NAV-GO ENTERPRISES INC.
Retained Earnings Statement
For the Year Ended December 31, 2014
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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) + (800,000 shares × $0.07)] 81,000
Cash Dividends Payable 81,000
Apr. 30 Cash Dividends Payable 81,000
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
the decision to lend Ebbers this money was to keep him from selling his stock
and depressing the share price. Thus, it claimed that it was actually helping
shareholders by keeping these shares from being sold. However, this argument
wasn’t well received, given that the share price dropped from around $15 per
share at the time of the loan to about $2.50 per share when Ebbers was
terminated. In addition, critics were scornful of the low “sweetheart” interest rate
given to Ebbers for this loan. In addition, many critics viewed the loan as risky,
given that it was not supported by any personal assets. WorldCom has since
entered bankruptcy proceedings, Ebbers has gone to prison, and the Ebbers loan
went uncollected.
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
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 net
sales and $120 per share payment obligations in the notes to the financial
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–4
a. 500 shares × ($0.80 ÷ 4) = $100
CP 13–5
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
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
CP 13–6
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.
The following information was prepared for Google Inc. based upon the SEC 10-K
filing for the year ending December 31, 2011.
3. The following is 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
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CP 13–6 (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)
and par value of $321 (Class A $250, Class B $71) and 324,895 (Class A 257,553,
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CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends
CP 13–6 (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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