Accounting II Chapter 14: Corporations: Dividends, Retained Earnings, and Income Reporting

Jurgens Company has had 4 years of net income. Due to this success, the market price of its 400,000 shares of $3 par value common stock has increased from $12 per share to $46. During this period, paid-in capital remained the same at $2,800,000. Retained earnings increased from $1,800,000 to $12,000,000. President E. Rife is considering either a 15% stock dividend or a 2-for-1 stock split. (a) He asks you to show the before-and-after effects of each option on retained earnings. (b) He asks you to show the before-and-after effects of each option on total stockholders' equity.

(a) He asks you to show the before-and-after effects of each option on retained earnings. Retained earnings after stock dividend $9,240,000 Retained earnings after stock split $12,000,000 stock dividend= shares x percentage of stock dividend x new share price stock dividend= 400,000 x 15% x 46 stock dividend= 2,760,000 retained earnings after stock dividend= new retained earnings - stock dividend retained earnings after stock dividend= 12,000,000 - 2,760,000 retained earnings after stock dividend= 9,240,000 Retained earnings after stock split is same as before stock split.... (b) He asks you to show the before-and-after effects of each option on total stockholders' equity. Total stockholders' equity after stock dividend $14,800,000 Total stockholders' equity after stock split $14,800,000 total stockholders' equity= new retained earnings + amount paid-in capital total stockholders' equity= 12,000,000 + 2,800,000 total stockholders' equity= 14,800,000

The following information is available for Norman Corporation for the year ended December 31, 2022: sales revenue $700,000, other revenues and gains $92,000, operating expenses $110,000, cost of goods sold $465,000, other expenses and losses $32,000, and preferred stock dividends $30,000. The company's tax rate was 20%, and it had 50,000 common shares outstanding during the entire year. (a) Prepare a corporate income statement. (b) Calculate earnings per share.

(a) Prepare a corporate income statement. Norman Corporation Income Statement For the Year Ended December 31, 2022 Sales Revenue 700,000 Cost of Goods Sold 465,000 Gross Profit /(Loss) 235,000 Operating Expenses 110,000 Income from Operations 125,000 Other Revenues and Gains 92,000 Other Expenses and Losses 32,000 Income before Income Taxes 185,000 Income Tax Expense 37,000 (185,000 x 20%) Net Income /(Loss) 148,000 (b) Calculate earnings per share. Earnings per share $2.36 earnings per share= (net income - preferred stock dividends)/ common shares outstanding earnings per share= 2.36

In 2022, Pennington Corporation had net sales of $600,000 and cost of goods sold of $360,000. Operating expenses were $153,000, and interest expense was $7,500. The corporation's tax rate is 20%. The corporation declared preferred dividends of $15,000 in 2022, and its average common stockholders' equity during the year was $200,000. (a) Prepare an income statement for Pennington Corporation. (b) Compute Pennington's Corporation's return on common stockholders' equity for 2022.

(a) Prepare an income statement for Pennington Corporation. Pennington Corporation Income Statement For the Year Ended December 31, 2022 Net Sales 600,000 Cost of Goods Sold 360,000 Gross Profit /(Loss) 240,000 Operating Expenses 153,000 Income from Operations 87,000 Interest Expense 7,500 Income before Income Taxes 79,500 Income Tax Expense 15,900 Net Income /(Loss) 63,600 (b) Compute Pennington's Corporation's return on common stockholders' equity for 2022. Return on common stockholders' equity 24.3% return on common stockholders' equity= (net income - preferred dividends) / average common stockholders' equity)

Knudsen Corporation was organized on January 1, 2022. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,00 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2021, $5,000; 2022, $12,000; and 2023, $28,000. (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and noncumulative. (b) Show the allocation of dividends to each class stock, assuming the preferred stock dividend is 7% and cumulative. (c) Journalize the declaration of the cash dividend at December 31, 2023, under part (b).

(a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and noncumulative. 2021 2022 2023 Allocation to preferred stock 5,000 6,000 6,000 Allocation to common stock 0 6,000 22,000 annual preferred dividends= number of shares x par value x preferred stock dividend percent annual preferred dividends= 6,000 (b) Show the allocation of dividends to each class stock, assuming the preferred stock dividend is 7% and cumulative. 2021 2022 2023 Allocation to preferred stock 5,000 9,000 7,000 Allocation to common stock 0 3,000 21,000 annual preferred dividends= 2,000 x 50 x 7% annual preferred dividends= 7,000 (c) Journalize the declaration of the cash dividend at December 31, 2023, under part (b). Debit Credit Dec. 31 Cash Dividends 28,000 Dividends Payable 28,000

At December 31, 2022, Millwood Corporation has 2,000 shares of $100 par value, 8% preferred stock outstanding and 100,000 shares of $10 par value common stock issued. Millwood's net income for the year is $241,000. Compute the earnings per share of common stock under the following independent situations. (a) The dividend to preferred stockholders was declared. There has been no change in the number of shares of common stock outstanding during the year. (b) The dividend to preferred stockholders was not declared. The preferred stock is cumulative. Millwood held 10,000 shares of common treasury stock throughout the year.

(a) The dividend to preferred stockholders was declared. There has been no change in the number of shares of common stock outstanding during the year. Earnings per share of common stock $2.25 preferred dividends= shares x par value x percent preferred stock preferred dividends= 16,000 earnings per share= (net income - preferred dividends) / common shares outstanding earnings per share= (241,000 - 16,000) / 100,000 earnings per share= 2.25 (b) The dividend to preferred stockholders was not declared. The preferred stock is cumulative. Millwood held 10,000 shares of common treasury stock throughout the year. Earnings per share of common stock $2.50 earnings per share= (241,000 - 16,000) / 90,000 earnings per share= 2.5

This financial information is available for Klinger Corporation. 2022 2021 Average common stockholders' equity $1,800,000 $1,900,000 Dividends paid to common stockholders 90,000 70,000 Dividends paid to preferred stockholders 20,000 20,000 Net income 200,000 191,000 Market price of common stock 20 25 The weighted-average number of shares of common stock outstanding was 180,000 for 2021 and 150,000 for 2022. Calculate earnings per share and return on common stockholders' equity for 2022 and 2021.

2022 2021 Earnings per share $1.20 $0.95 Return on common stockholders' equity 10.00% 9.00% earnings per share= (net income - preferred stock dividends)/ common shares outstanding return on common stockholders' equity= (net income - preferred dividends) / average common stockholders' equity)

The following financial information is available for Plummer Corporation. 2022 2021 Average common stockholders' equity $1,200,000 $900,000 Dividends paid to common stockholders 50,000 30,000 Dividends paid to preferred stockholders 20,000 20,000 Net income 290,000 200,000 Market price of common stock 20 15 The weighted-average number of shares of common stock was 80,000 for 2021 and 100,000 for 2022. Calculate earnings per share and return on common stockholders' equity for 2022 or 2021.

2022 2021 Earnings per share $2.70 $2.25 Return on common stockholders' equity 22.50% 20.00% earnings per share= (net income - preferred stock dividends)/ common shares outstanding return on common stockholders' equity= (net income - preferred dividends) / average common stockholders' equity)

The following financial information is available for Flintlock Corporation. (in millions) 2022 2021 Average common stockholders' equity $2,532 $2,591 Dividends declared for common stockholders 298 611 Dividends declared for preferred stockholders 40 40 Net income 504 555 Calculate the payout ratio and return on common stockholders' equity for 2022 and 2021.

2022 2021 Payout ratio 59.13% 110.09% Return on common stockholders' equity 18.33% 19.88% payout ratio= dividend declared by common shareholders / net income payout ratio 2022= 298/504 payout ratio 2022= 0.59126 or 59.13% payout ratio 2021= 611/555 payout ratio 2021= 1.1009 or 110.09% return on equity= (net income - preferred dividends) / average equity return on equity 2022= (504 - 40)/ 2,532 return on equity 2022= 0.18325 or 18.33% return on equity 2021= (555 - 40)/ 2,591 return on equity 2021= 0.19876 or 19.88

M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If M-Bot wants to pay $375,000 of dividends in 2022, what amount of dividends will common stockholders receive?

Amount of Dividend $135,000 Preferred Stock=(#of shares x par value x %) Preferred Stock=(10,000 shares x 100 par value x 8%) Preferred Stock=80,000 Cumulative dividend paid to shareholder= (80,000x2+80,000) Cumulative dividend paid to shareholder= $240,000 Total dividend paid= $375,000 Dividend received by common stockholder= (Total dividend paid- cumulative dividend paid) Dividend received by common stockholder= (375,000-240,000) Dividend received by common stockholder= $135,000

On October 31, the stockholders' equity section of Heins Company consists of common stock $500,00 and retained earnings $900,000. Heins is considering the following two courses of actions: (1) declaring a 5% stock dividend on the 50,000, $10 par value share outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share. Prepare a tabular summary of the effects of the alternative actions on the components of stockholders' equity, outstanding shares, and par value per share.

Before After After Action Stock Dividend Stock Split Stockholders' equity Paid-in capital Common stock 500,000 525,000 500,000 In excess of par 0 10,000 0 Total paid-in capital 500,000 535,000 500,000 Retained earnings 900,000 865,000 900,000 Total stockholders' equity 1,400,000 1,400,000 1,400,000 Outstanding shares 50,000 52,500 100,000 Par value per share 10 10 5

The stockholders' equity section of Pretzer Corporation consists of common stock ($10 par) $2,000,000 and retained earnings $500,000. A 10% stock dividend (20,000 shares) is declared when the market price per share is $14. Show the before-and-after effects of the dividend on the following. (a) The components of stockholders' equity. (b) Shares outstanding. (c) Par value per share.

Before Dividend After Dividend Stockholders' equity $2,000,000 $2,500,000 Outstanding shares $200,000 $220,000 Par value per share $10 $10

Before preparing financial statements for the current year, the child accountant for Toso Company discovered the following errors in the accounts. 1. The declaration and payments of $50,000 cash dividend was recorded as a debit to Interest Expense $50,00 and a credit to Cash $50,000. 2. A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market price per share was $18. The only entry made was Stock Dividends (Dr.) 10,000 and Dividend Payable (cr.) $10,000. The shares have not been issued. 3. A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000. Prepare the correcting entries at December 31.

Debit Credit 1. Dec. 31 Cash Dividends 50,000 Interest Expense 50,000 2. Dec. 31 Stock Dividends 8,000 ((1,000 x 18)-10,000) Dividends Payable 10,000 Common Stock Dividends Distributable 10,000 Paid-in Capital in Excess of Par-Common Stock 8,000 (1,000x(18-10)) 3. Dec. 31 Common Stock 2,000,000 Retained Earnings 2,000,000

Langley Corporation has 50,000 shares of $10 par value common stock outstanding. It declares a 15% stock dividend on December 1 when the market price per share is $16. The dividend shares are issued on December 31. Prepare the entries for the declaration and issuance of the stock dividend.

Debit Credit Dec. 1 Stock Dividends 120,000 (50,000 shares x 15% stock dividend= 7,500) (7,500 x $16 price per share= 120,000) Common Stock Dividends Distributable 75,000 Paid-in Capital in Excess of Par- 45,000 Common Stock (120,000-75,000=45,000) Dec. 31 Common Stock Dividends Distributable 75,000 Common Stock 75,000

The following information is available for Reinsch Corporation for the year ended December 31, 2022: cost of goods sold $205,000, sales revenue $350,000, other revenues and gains $50,000, and operating expenses $75,000. Assuming a corporate tax rate of 20%, prepare an income statement for the company.

Reinsch Corporation Income Statement For the Year Ended December 31, 2022 Sales Revenue 350,000 Cost of Goods Sold 205,000 ----------- Gross Profit/ (Loss) 145,000 Operating Expenses 75,000 --------- Income from Operations 70,000 Other Revenue and Gains 50,000 -------- Income before Income Taxes 120,000 Income Tax Expense 24,000 -------- Net Income/ (Loss) 96,000

On January 1, 2022, Eddy Corporation had retained earnings of $610,000. During the year, Eddy had the following selected transactions. 1. Declared and paid cash dividends $120,000. 2. Corrected overstatement of 2021 net income because of inventory error $40,000. 3. Earned net income $350,000. 4. Declared and paid stock dividends $90,000. Determine the retained earnings balance at the end of the year.

Retained earnings $710,000 retained earnings= 610,000-40,000= 570,000 570,000+350,000= 920,000 120,000+90,000= 210,000 920,000-210,000= 710,000

Ziegler Corporation reports net income of $380,000 and a weighted-average of 200,000shares of common stock outstanding for the year. Ziegler has cumulative preferred stock dividends for the current year of $30,000 that were declared and paid. Compute the earnings per share of common stock.

Earnings per share $1.75 earnings per share= (net income - preferred dividend) / (weighted-average shares of common stock) earnings per share= (380,000 - 30,000) / 200,000 earnings per share= 1.75

Ziegler Corporation reports net income of $380,000 and a weighted-average of 200,000 shares of common stock outstanding for the year. Compute the earnings per share of common stock.

Earnings per share $1.90 earnings per share= (net income - preferred dividend) / (weighted-average shares of common stock) earnings per share= (380,000 - 0) / 200,000 earnings per share= 1.90

On January 1, 2022, Vahsholtz Corporation purchased 5,000 shares of treasury stock. Other information regarding Vahsholtz Corporation is provided as follows. 2021 2022 Net income $100,000 $110,000 Dividends on preferred stock $30,000 $30,000 Dividends on common stock $20,000 $25,000 Weighted-average number of common shares 50,000 45,000 outstanding Common stockholders' equity beginning of year $600,000 $750,000 Common stockholders' equity end of year $750,000 $830,000 (a) Compute earnings per share for each year.

(a) Compute earnings per share for each year. 2021 2022 Earnings per share $1.40 $1.78 earnings per share= (net income - preferred dividend) / (weighted-average shares of common stock) earnings per share 2021= (100,000 - 30,000) / 50,000 earnings per share 2021= 1.4 earnings per share 2022= (110,000 - 30,000) / 45,000 earnings per share 2022= 1.78

On January 1, 2022, Vahsholtz Corporation purchased 5,000 shares of treasury stock. Other information regarding Vahsholtz Corporation is provided as follows. 2021 2022 Net income $100,000 $110,000 Dividends on preferred stock 30,000 30,000 Dividends on common stock 20,000 18,000 Common stockholders' equity beginning of year 600,000 750,000 Common stockholders' equity end of year 750,000 830,000 (a) Compute return on common stockholders' equity for each year.

(a) Compute return on common stockholders' equity for each year. 2021 2022 Return on common stockholders' equity 10.4% 10.1% return on stockholders' equity= (net income - dividend on preferred stock) / average common stockholders equity return on common stockholders' equity 2021= (100,000 - 30,000) / (600,000+750,000/2) return on common stockholders' equity 2021= 70,000 / 675,000 return on common stockholders' equity 2021= 0.1037 or 10.37% return on common stockholders' equity 2022= (110,000 - 30,000) / (750,000+830,000/2) return on common stockholders' equity 2022= 80,000 / 790,000 return on common stockholders' equity 2022= 0.10126 or 10.12%

Herr Corporation has 3,000 shares of 7%, $100 par value preferred stock outstanding at December 31, 2022. At December 31, 2022, the company declared a $105,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios. 1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years. 2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years, 3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.

1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years. The dividend paid to preferred stockholders $21,000 The dividend paid to common stockholders $84,000 The dividend paid to preferred stockholders= shares x par value x percentage The dividend paid to common stockholders= cash dividend - dividend paid to preferred stockholders 2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years, The dividend paid to preferred stockholders $21,000 The dividend paid to common stockholders $84,000 The dividend paid to preferred stockholders= shares x par value x percentage The dividend paid to common stockholders= cash dividend - dividend paid to preferred stockholders 3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years. The dividend paid to preferred stockholders $63,000 The dividend paid to common stockholders $42,000 The dividend paid to preferred stockholders= shares x par value x percentage x number of years The dividend paid to common stockholders= cash dividend - dividend paid to preferred stockholders

Supervalu, one of the largest grocery retailers in the United States, is headquartered in Minneapolis. Suppose the following financial information (in millions) was taken from the company's 2022 annual report sales $40,597, net income $393, beginning common stockholders' equity $2,581, and ending common stockholders' equity $2,887. Compute the return on common stockholders' equity.

Return on common stockholders' equity 14.4% average stockholders equity= beginning eq+ending eq/2 return on equity= net income/ average common stockholder equity Net income= 393 Average common stockholders equity= (2,581+2,887)/2= 2,734 Return on equity= 393/ 2,734= 0.1437 14.37%... 14.4%