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[answered] 1/ Determining the Financial Statement Effects of Dividend&


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Q. 1/ Determining the Financial Statement Effects of Dividend?s

 

Uno Company has outstanding 52,000 common shares and 25,000, $2, preferred shares. On December

 

1, 2014 the board of directors voted to distribute a $2 cash dividend per preferred share and a 5 percent

 

common stock dividend n the common shares. AT the date of declaration, the common share was selling

 

a $40, and the preferred share at 25. The dividends are to be paid, or issued, on February 15, 2015. The

 

company?s fiscal ear of December 31.

 

Required:

 

Explain the comparative effects of the two dividends on the assets, liabilities, and shareholders; equity

 

(a) through December 31, 2014.

 

(b) on February 15,2015, and

 

(c) Overall from December 1, 2014, through February 15, 2015. A schedule similar to the following might

 

be helpful:

 

Item

 

(1). Through Dec. 31, 2014

 

Assets, etc. Cash Dividend Comparative Effects Explained

 

Stock Dividend on Common Q. 2/ Preparing the Shareholders? Equity Section after Selected Transactions

 

Preferred shares, no par value, cumulative, 4000 shares issued

 

Common shares, no par value, 125,000 shares issued

 

Retained earnings $200,000

 

2,500,000

 

1,600,000 The following transactions occurred during the year

 

March 10

 

Purchased a building for $3,000,000. The seller agreed to receive 20,000 preferred

 

shares and 15,00 common shares of Gennar in exchange for the building. The preferred shares were

 

trading in the market at $50 per share on that day.

 

July 1

 

Declared a semi-annual cash dividend of $1.00 per common share and the required

 

amount of dividends on preferred shares, payable on August 1, 2014, to shareholders of record on July

 

21,2014. The annual dividend of $2 per preferred share had not been paid in either 2013, or 2014.

 

August 1 Paid the cash dividend declared on July 1 to both common and preferred shareholders. December 31 Determined that net earnings for the year were $385,000. Required:

 

1/ Prepared journal entries to record the above transactions.

 

2/ Prepared the Shareholders? Equity section of Gennar?s statement of financial position as at December

 

31. Q.3/ Comparing Stock and Cash Dividends.

 

Ritz Company had the following shares outstanding and retained earnings at December 31, 2015:

 

Preferred shares, 8% (par value $25; outstanding, 9000 shares)

 

Common shares (outstanding, 5,000 shares)

 

Retained Earnings $225,000

 

800,000

 

720,000 Considering the distribution of a cash dividend to the two groups of shareholders. No dividends were

 

declared during 2013 or 2014. Three independent cases are assumed:

 

Case A: The preferred shares are non- cumulative; the total amount of dividends is $25,000. Case B: The preferred shares are cumulative; the total amount of dividends is $36,000. Case C: Same as case B, except the amount id $77.500. Required:

 

1/ Computer the amount of dividends, in total and per share, payable to each class of shareholders for

 

each case. Show computations.

 

2/ Assume that the company issued a 10 percent common stock dividend on the outstanding common

 

shares only, including an explanation of the differences.

 

Item

 

Assets

 

Liabilities

 

Shareholders? Equity Amount of Dollar Increase (Decrease)

 

Cahs Dividend?Case C

 

Stock Dividend

 

$.........................

 

$........................

 

$.........................

 

$.........................

 

$.........................

 

$......................... Q.4/ Prepared the Statement of Cash flows with Sale of Equipment

 

Wong, the sole shareholder and manager of Kitchenware Inc., has approached you and asked you to

 

prepare a statement of cash flows for her company. The company sells kitchen utensils that are used in

 

most households. Won is worried about the meeting that has scheduled in two weeks with a lending

 

officer of her bank. It is times for a renew of the company?s loan from the bank.

 

Mar provided you with the following condensed financial statements for the fiscal years ended

 

December 1, 2013 and 2014. She assures you that the financial statements are free of any omissions? or

 

misstatements, and that they conform to IFRS. KITCHENWARE INC.

 

Statements ofStatements

 

Financial Position

 

as at December 31

 

of Earnings

 

(in the

 

thousands

 

of dollars)

 

For

 

year ended

 

Dec.31

 

2014

 

2014

 

Sales Revenue

 

980,000

 

Assets

 

Cost

 

of Sales

 

(640,000)

 

Current

 

assets

 

Gross

 

Profit

 

340,000

 

Cash

 

$1000

 

Short-termexpenses:

 

investments

 

2000

 

Operating

 

Trade accounts receivable

 

56300

 

Depreciation

 

(15,000)

 

Inventories

 

10000

 

Selling and general

 

(298,800)

 

Furniturefrom

 

and fixtures,

 

at cost

 

59000

 

Earnings

 

Operations

 

26,000

 

Less: Accumulated

 

(24000)

 

Interest

 

Expense depreciation

 

(9,600)

 

Investments

 

2000

 

Loss on sale of furniture

 

(1,200)

 

Total on

 

assets

 

106300

 

Gain

 

sale of investments

 

800

 

Earnings before income taxes

 

16,000

 

Liabilities

 

Shareholders?

 

Income

 

taxand

 

expense

 

(@25%) Equity

 

(4,000)

 

Current

 

liability

 

Net

 

Earnings

 

12,000

 

Bank loan

 

18000

 

Trade accounts payable

 

17000

 

Dividends payable

 

0

 

-----------Total current liabilities

 

35000 2013

 

2013

 

880,000

 

(560,000)

 

320,000

 

3400

 

8000

 

10600

 

(12,000)

 

30000

 

(288,000)

 

26000

 

20,000

 

(12000)

 

3,200

 

3000

 

0

 

69000

 

0

 

16,800

 

(4,200)

 

12,600

 

8000

 

13100

 

600

 

21700 Non-current liabilities

 

Mortgage notes payable 28000 0 Total Liab. 63000 21700 24000

 

19300

 

43300

 

106300 22000

 

25300

 

47300

 

69000 Shareholders? equity

 

Contributed capital

 

Retained earnings

 

Total shareholders? equity

 

Total Liab. And SE Additional information:

 

(a) During 2014, the company sold old furniture with an original coast of $5,000 and $3,200 of

 

accumulated depreciation up to the date of sale.

 

(b) During 2014, the company sold one of the non-current investments that had cost $1,000. The

 

gain on this sale is reported on the statement of earnings.

 

(c) The company considers short-term investments as cash equivalents. Required:

 

1/ Repaired a partial statement of cash flows for Kitchenware Inc. (USE THE INDIRECT METHOD) showing

 

the operation activities section for the year ended December 31, 2014. The company uses the indirect

 

method to report cash flows from operations.

 

2/ Compute the following amounts:

 

(a) Cash collected from customers, assuming that 90% of the sales are on credit.

 

(b) Cash paid to trade suppliers of merchandise.

 

(c) Cash received for sale of old furniture.

 

3/ Prepare the investing activities section of the statement of cash flows for Kitchenware Inc. for the year

 

ended December 31, 2014

 

4/ Compute and explain (a) the quality of earnings ratio, and

 

(b) free cash flow.

 

5/ Wong proposal the furniture and fixtures be depreciated over a longer period. This change will

 

decrease depreciation expense by $2,000 in 2013 and by $4000 in 2014. As professional accountant,

 

would this proposed change be acceptable to you? Explain!

 


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