Chapter 15: Question 2 Q (page 809)
Why is a preemptive right important?
As new shares are issued, and the company's ownership is diluted, preemptive rights prevent a shareholder from losing voting power.
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(Computation of Retained Earnings) The following information has been taken from the ledger accounts of Isaac Stern Corporation.
Total income since incorporation $317,000
Cash dividends paid 60,000
Total value of stock dividends distributed 30,000
Gains on treasury stock transactions 18,000
Unamortized discount on bonds payable 32,000
Instructions
Determine the current balance of retained earnings.
(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of \(10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2017, Mask purchased 1,000 shares of treasury stock for \)18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2017, Mask sold 500 shares of the treasury stock for \(20 per share.
In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was \)21 per share.
On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.
Instructions
(Comparison of Alternative Forms of Financing) Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling \(4,200,000.
Jana Kingston Co. | |
Current liabilities | \) 300,000 |
Long-term debt, 10% | 1,200,000 |
Common stock (\(20 par) | 2,000,000 |
Retained earnings (Cash dividends, \)328,000) | 700,000 |
\(4,200,000 |
Mary Ann Benson Co. | |
Current liabilities | \) 600,000 |
Common stock (\(20 par) | 2,900,000 |
Retained earnings (Cash dividends, \)328,000) | 700,000 |
\(4,200,000 |
For the year, each company has earned the same income before interest and taxes.
Jana Kingston Co. | Mary Ann Benson Co. | |
Income before interest and taxes | \)1,200,000 | \(1,200,000 |
Interest expense | 120,000 | 0 |
1,080,000 | 1,200,000 | |
Income taxes (45% | 486,000 | 540,000 |
Net income | \) 594,000 | \( 660,000 |
At year end, the market price of Kingston’s stock was \)101 per share, and Benson’s was $63.50.
Instructions
Wilco Corporation has the following account balances at December 31, 2017.
Common stock, \(5 par value \) 510,000
Treasury stock 90,000
Retained earnings 2,340,000
Paid-in capital in excess of par—common stock 1,320,000
Prepare Wilco’s December 31, 2017, stockholders’ equity section.
Arantxa Corporation has outstanding 20,000 shares of \(5 par value common stock. On August 1, 2017, Arantxa reacquired 200 shares at \)80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa’s journal entries to record these transactions using the cost method.
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