Question

Mastery Problem: Corporations: Organization, Stock Transactions, and Dividends Pranks, Inc. Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You've been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock. Number of common shares authorized 900,000 Number of common shares issued 750,000 Par value of common shares $20 Par value of cumulative preferred shares $30 $7,000,000 Paid-in capital in excess of par-common stock Paid-in capital in excess of par-preferred stock $0 $33,500,000 Total retained earnings before the stock dividend is declared No treasury share have been reissued. Preferred Dividends Common Dividends Total Cash Dividends Year Total Per Share Total Per Share Year 1 30,000 0.20 0 0.00 30,000 54,000 Year 2 54,000 0.36 0 0.00 0.09 Year 3 105,000 0.34 54,000 Year 4 135,000 0.15 51,000 45,000 45,000 45,000 Year 5 153,000 225,000 0.3 0.3 0.3 90,000 108,000 180,000 0.18 0.3 Year 6

Answer 1

Number of Shares Authorised	900,000
Number of Common Shares issued	750,000
Par Value of common shares	$                            20.00
Par Value of cumulative preferred stock	$                            30.00
Paid-in capital in excess of par-common stock	$              7,000,000.00
Paid-in capital in excess of par-preferred stock	$                                   -
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Common Share outstanding
Dividend per share	0.3
Total dividend	180000
Common Share outstanding	=180000/0.3
	600,000
Cumulative Preference Share outstanding
Dividend per share	0.3
Total dividend	45000
Common Share outstanding	=45000/0.3
	150,000
Total Paid-in Capital before the stock dividend
Number of Common Shares issued	750000
Par Value of common shares	$                            20.00
Total Paid-in Capital before the stock dividend	=750,000*$20
	$           15,000,000.00
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Total Shareholder Equity before the stock dividend
Number of Common Shares issued	750,000
Par Value of common shares	$                            20.00
Total Paid-in Common stock	=750,000*$20	$ 15,000,000.00
Par Value of cumulative preferred stock	$                            30.00
Number of Cumulative Preference Share outstanding	150,000
Total Paid-in Cumulative Preference stock	=150,000*$30	$    4,500,000.00
Paid-in capital in excess of par-common stock		$    7,000,000.00
Total Paid-in cumulative preferred stock	=750,000*$20	$ 15,000,000.00
Total retained earning before the stock dividend is declared		$ 33,500,000.00
Total Shareholder Equity before the stock dividend	(sum of all above)	$ 75,000,000.00
Stock Dividend (a)	2%
ie sharehlder will receive 2 shares for every 100 share owned
Total Number of Common share outstanding	600000	(pls note that treasury share are not eligible for stock dividend)
Number of shares due to stock dividend	=600000*2/100
Number of shares due to stock dividend	12,000
Total Paid-in Capital before the stock dividend
Number of Common Shares issued	750000
Par Value of common shares	$                            20.00
Total Paid-in Capital before the stock dividend (a)	=750,000*$20
		$ 15,000,000.00
Add: Number of shares due to stock dividend	12,000
Par Value of common shares	$                            20.00
Total Value (b)	=12000*20	$        240,000.00
Total Paid-in Capital After the stock dividend. C=a+b	=$15,000,000+$240,000	$ 15,240,000.00
Total retained earning Post stock dividend
Total retained eaning before the stock dividend is declared	$           33,500,000.00
Less: Adjustment of Stock Dividend	$               (240,000.00)
Total retained earning Post stock dividend	$           33,260,000.00
Total Shareholder Equity before the stock dividend
Number of Common Shares issued	750,000
Number of Shares due to Stock Dividend	12,000
Par Value of common shares	$                            20.00
Total Paid-in Common stock	=(750,000+12000)*$20	$ 15,240,000.00
Par Value of cumulative preferred stock	$                            30.00
Number of Cumulative Preference Share outstanding	-
Total Paid-in Cumulative Preference stock	=150,000*$30	$    4,500,000.00
Paid-in capital in excess of par-common stock		$    7,000,000.00
Total Paid-in cumulative preferred stock	=750,000*$20	$ 15,000,000.00
Total retained earning After the stock dividend is declared		$ 33,260,000.00
Total Shareholder Equity after stock dividend	(sum of all above)	$ 75,000,000.00
Please note that there will no impact in Total Shareholder Equity due to stock dividends as stock dividends mearly decreases the Retained earning and increases the Paid up share capital