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Homework answers / question archive / exercise 2 Given the following data for 2014: 50000:2000 = 2, 25
exercise 2 Given the following data for 2014: 50000:2000 = 2, 25.1000-2500 Common stock Preferred stock, 10% Paid-in capital in excess of par + Retained earnings (opening balance, credit) Cash dividends distributed in 2014 - Treasury shares Net loss for the year Preferred dividends in arrears Common stock issued Common stock outstanding Preferred stock issued and outstanding €50,000 €16,000 €220.000 €65,000 €8,500 - €4,800 €12,000 €2,000 20,000 shares 19,000 shares 4,000 shares 52.500 Required: 1. Prepare the shareholder's equity section of the balance sheet; 2. Determine the total paid-in capital; 3. Calculate the par value per share of common stock and preferred stock; 4. Calculate the book value per share of common stock and preferred stock. 5. In 2015 the company distributed a cash dividend of €4,500 and issued 1,000 shares of common stock to acquire a patent with a market value of €6,300. Journalize the transactions (differentiating between dividends to common and preferred shareholders) and calculate the updated book values per share of common and preferred stock.
| 1.Balance Sheet | |||
| Shareholder's Equity section | |||
| Common stock, issued 20000 shares | |||
| Common stock outstanding,19000 shares | 50000 | ||
| Paid-in capital,in excess of par | 220000 | 270000 | |
| Preferred stock,10%, issued and outstanding, 4000 shares | 16000 | ||
| Total paid -in capital | 286000 | ||
| Retained earnings | 44500 | ||
| Treasury shares | -4800 | ||
| Total Shareholder's Equity | 325700 |
| Retained Earnings---workings | ||
| Debit | Credit | |
| Opening Balance | 65000 | |
| Cash dividends distributed in 2014 | 8500 | |
| Net loss for the year | 12000 | |
| Closing balance | 44500 | |
| 65000 | 65000 |
| 2. Total paid-in capital | ||
| as shown in 1. above is | ||
| Common stock outstanding,19000 shares | 50000 | |
| Paid-in capital,in excess of par | 220000 | 270000 |
| Preferred stock,10%, issued and outstanding, 4000 shares | 16000 | |
| Total paid -in capital | 286000 |
| 3.Par value per share of |
| Common stock--- Total par value/No.of shares issued, ie.50000/20000= |
| 2.5 |
| per share |
| Preferred stock----16000/4000= |
| 4 |
| per share |
| 4.Book value per share of |
| Common stock---(Total shareholders' Equity-Preferred stock)/No.of shares o/s |
| ie. (325700-16000)/19000= |
| 16.3 |
| per share |
| Preferred stock----(Par value+Preferred dividend in arrears)/No.of shares o/s |
| ie.(16000+2000)/4000= |
| 4.5 |
| per share |
| 5.. Journal Entries | Debit | Credit |
| Retained Earnings | 2500 | |
| Preferred dividend in arrears | 2000 | |
| Cash-Preferred dividends(2000+(16000*10%)) | 3600 | |
| Cash-common stock dividends (bal.) | 900 | |
| Patent | 6300 | |
| Common stock(1000*2.5) | 2500 | |
| Paid-in capital in excess of par | 3800 |
| Updated Book value per share of |
| Continuing from the above workings in 4., inserting the relevant values in the new journal entries, in 5, |
| Common stock---(Total shareholders' Equity-Preferred stock)/No.of shares o/s |
| ie. (325700-16000-2500+6300)/(19000+1000)= |
| 313500/20000= |
| 15.68 |
| per share |
| Preferred stock----(Par value+Preferred dividend in arrears)/No.of shares o/s |
| ie.(16000+0)/4000= |
| 4 |
| per share |
| Pl. Note: Preferred dividend , in arrears , is a liability, till paid ---already debited in Retained Earnings a/c---so, will appear only as a liability & not part of shareholders' Equity. |
