PROBLEM 15-8B (Continued)
Note:
The journal entries made for the previous transaction are:
Equity Investments ($3.50 – $3.10) X 10,250 ……………
4,100
Equity Investments …………………………………………
(e) Wellington declares a 1-for-2 reverse stock split
(1) Total assets—no effect
(2) Common stock—no effect
PROBLEM 15-9B
STOTESBURY CORPORATION
Stockholders’ Equity
December 31, 2016
Capital stock:
Preferred stock, $100 par value
50,000 shares authorized, 8,000 shares
Issued and outstanding …………………………………….
$ 800,000
Common stock, $10 par value
Total capital stock ………………………………………..
Additional paid-in capital:
Paid-in capital in excess of par—preferred
stock ………………………………………………………………..
$ 48,000
Paid-in capital in excess of par—common stock …….
14,476,000*
Paid-in capital from treasury stock—preferred ……….
16,100
14,540,100
Total paid-in capital ………………………………………
Retained earnings
PROBLEM 15-10B
To: Snowcrab Sails Board of Directors
From: Good Student, Financial Advisor
Date: Today
Subject: Report on the effects of a stock dividend and a stock split
INTRODUCTION
As financial advisor to the Board of Directors for Snowcrab Sails, I have
been asked to report on the effects of the following options for creating
RECOMMENDATION
In order to meet the needs of Snowcrab Sails Inc., the board should choose
a 4-for-1 stock split. The stock split is the only option which would not
DISCUSSION OF OPTIONS
The three above-mentioned options would all result in an increased
number of common shares outstanding. Because the shares would be
PROBLEM 15-10B (Continued)
A 20% STOCK DIVIDEND
This option would increase the shares outstanding by 20 percent, which
translates into 2,000,000 additional shares of $10 par value common stock.
Although the Common Stock Dividend Distributable and the Paid-in Capital
accounts increase, Retained Earnings decreases dramatically. This reduction
in Retained Earnings may hinder Snowcrab Sails’ success with the
subsequent stock offer.
A 200% STOCK DIVIDEND
This option would triple the number of $10 par value common stock cur–
rently issued and outstanding. Because this type of dividend is considered,
in substance, a stock split, the shares do not have to be accounted for at
PROBLEM 15-10B (Continued)
A 4-FOR-1 STOCK SPLIT
This option increases the number of shares issued and outstanding four
fold; however, it also cuts the par value per share in half. No accounting
treatment beyond a memorandum entry is required for the split because
CONCLUSION
To generate the greatest interest in Snowcrab Sails stock while maintaining
the present balances in the stockholders’ equity section of the balance
sheet, you should opt for the 4-for-1 stock split.
PROBLEM 15-11B
(a)
June 20, 2014
Retained Earnings ………………………………………. 1,650,000
Dividends Payable …………………………………. 1,650,000
(b)
September 30, 2014
Retained Earnings ………………………………………. 3,300,000
Common Stock Dividend
(c)
FKZ CORPORATION
Stockholders’ Equity
December 31, 2014
Common stock—$1 par value, issued
PROBLEM 15-11B (Continued)
Statement of Retained Earnings
For the Year Ended December 31, 2014
Balance, January 1 …………………………….
$81,000,000
Add: Net income ………………………………
9,100,000
90,100,000
Less: Dividends on common stock:
Cash ………………………………………..
Stock (see note) ……………………….
Schedule of Additional Paid-in Capital
For the Year Ended December 31, 2014
Balance January 1 ……………………………..
$26,900,000
distributed as a dividend (see note) ……
Note: The 5% stock dividend (275,000 shares) was declared on September 30,
2014. For the purposes of the dividend, the stock was assigned a price of
PROBLEM 15-12B
BENILUZ COMPANY
Stockholders’ Equity
June 30, 2015
Capital stock
4% preferred stock, $100 par value,
cumulative and nonparticipating,
200,000 shares authorized, 20,000
shares issued and outstanding—Note A …………….
$2,000,000
Common stock, $5 par value, 1,000,000
shares authorized, 321,940 shares
issued with 3,500 shares held in the treasury ……..
Total capital stock ……………………………………….
Additional paid-in capital
In excess of par-preferred stock …………………………..
$ 100,000
In excess of par-common stock …………………………..
6,539,620
6,639,620
Total paid-in capital ……………………………………..
10,249,320
Retained earnings
304,680
10,554,000
105,000
PROBLEM 15-12B (Continued)
Account Balances
Common Stock
1,100,000
120,000
300,000
1,609,700
4,180,000
507,000
1,440,000
Preferred Stock
2,000,000
Treasury Stock
Paid-in Capital in
Excess of Par—Common Stock
6,539,620
Paid-in Capital in
Excess of Par—Preferred Stock
100,000
Retained Earnings
824,000
9,000
32,000
40,000
Note that the Beniluz Company is authorized to issue 1,000,000 shares of
$5 par value common and 200,000 shares of $100 per value, cumulative and
nonparticipating preferred.
PROBLEM 15-12B (Continued)
Entries supporting the balances.
Common Stock
Entries
1. Cash ……………………………………………………….. 5,280,000
Common Stock …………………………………. 1,100,000
Paid-in Capital in Excess of Par—
Common Stock ………………………………. 4,180,000
2. Buildings ………………………………………………… 627,000
3. Cash ……………………………………………………….. 1,740,000
Common Stock ………………………………. 1,440,000
At the beginning of the year, Beniluz had 304,000 common shares out–
standing, of which 220,000 shares were issued at $24 per share, resulting
in $1,100,000 (220,000 shares at $5) of common stock and $4,180,000
Preferred Stock
Cash ……………………………………………………….. 2,100,000
PROBLEM 15-12B (Continued)
The issuance of 20,000 shares of preferred at $105 resulted in $2,000,000
(20,000 shares at $100) of preferred stock outstanding and $100,000
(20,000 shares at $5) of paid-in capital on preferred.
Treasury Stock
Aug. 31 Treasury Stock …………………………………. 150,000
Cash ……………………………………………. 150,000
Stock Dividend
Dec. 1 Retained Earnings (17,940 X $28) ……….. 502,320
Common Stock …………………………….. 89,700*
Paid-in Capital in Excess of Par—
Common Stock. …………………………. 412,620
PROBLEM 15-12B (Continued)
Retained Earnings
The cash dividends only affect the retained earnings. Note that the