problem 1
The outstanding share capital of Marginal Utility Corporation consists of 6,000 preferred shares with a book value of $420,000 and 22,000 common shares with a book value of $220,000. The preferred shares carry a dividend of $6 per share and have a $70 stated value.
Required: Assuming that the company has retained earnings of $340,000 that is to be entirely paid out in dividends and that preferred dividends were not paid during the two years preceding the current year, state how much each class of shares should receive under each of the following conditions:
a) The preferred shares are non-cumulative and non-participating. b) The preferred shares are cumulative and non-participating. c) The preferred shares are cumulative and participating.
Problem 2
The following data were taken from the Balance Sheet accounts of Apple Corporation on December 31, 2010:
$2,200,000 2,040,000
Current Assets Investments, FV-NI Common Shares (no par value, no authorized
Limit, 300,000 shares issued and
Outstanding) Contributed Surplus Retained Earnings
9,000,000
660,000 1,820,000
Required: Prepare the required journal entries for the following unrelated items:
a) A 4% stock dividend is declared and distributed at a time when the shares’
market value is $42 per share. b) A 5-for-1 stock split is effected. c) A dividend in kind is declared on January 5, 2011, and paid on February 15,
2011, in bonds that were classified as FV-NI. The bonds have a carrying value of $100,000 (equal to cost) and a fair market value of $160,000.
Problem 3 (20 Marks)
On January 2, 2011, Blueman Corporation was incorporated in the province of Ontario. It was authorized to issue an unlimited number of no-par value common shares, and 25,000 shares of no-par, $8, cumulative and non-participating preferred. During 2011, the firm completed the following transactions:
Jan 8 Accepted subscriptions for 34,000 common shares at $12 per share. Down
payment received on the subscribed shares was 50%. Jan 30 Issued 10,000 preferred shares in exchange for the following assets:
machinery with a fair market value of $50,000, a factory with a fair market
value of $200,000, and land with an appraised value of $120,000. Mar 15 Machinery with a fair market value of $85,000 was donated to the company. Apr 25 Collected the balance of the subscriptions receivable on only 30,000 shares
and issued common shares. A customer defaulted on the last payment on a subscription for 4,000 shares. The company policy is to issue the proportion
paid up to date for customers that default. June 30 Purchased 2,200 common shares at $18 per share. The shares were retired. Dec 31 Declared sufficient cash dividends to allow a $1 per share dividend for
outstanding common shares. The dividend is payable on January 10,
2012, to shareholders of record on January 5, 2012. Dec 31 Closed the income summary to retained earnings. The income for the period
was $225,000.
Required:
1. (16 Marks) Prepare the journal entries to record the above transactions. 2. (4 Marks) Prepare the shareholders’ equity section of the balance sheet for
Blueman Corporation at December 31, 2011.
