Lan Co. had 250,000 shares of common stock issued and outstanding at January 1,

Question

Lan Co. had 250,000 shares of common stock issued and outstanding at January 1, 20X6. During 20X6, Lan took the following actions: March 15—Declared a 3-for-1 stock split, when the fair value of the stock was $80 per share. December 15—Declared a $1.50 per share cash dividend. In Lan's statement of stockholders' equity for 20X6, what amount should Lan report as dividends? A. $1,125,000 B. $750,000 C. $375,000 D. $250,000 On May 18, 20X4, Son Corp.'s board of directors declared a 20% stock dividend. The market price of Son's 5,000 outstanding shares of $4 par value common stock was $13 per share on that date. The stock dividend was distributed on July 21, 20X4, when the stock's market price was $15 per share. What amount should Son credit to additional paid-in capital for this stock dividend? A. $45,000 B. $4,500 C. $11,000 D. $9,000 The owners' equity section of a firm includes (1) $20,000 of 9%, $100 par cumulative preferred stock, and (2) $60,000 of $5 par common stock. There is additional paid-in capital on both issues. The preferred is fully participating and there are two years of dividends in arrears as of the beginning of the current year. If the firm pays $50,000 in dividends, what amount is allocated to common? A. $50,000 B. $15,200 C. $34,800 D. $0 Lan Co. had 250,000 shares of common stock issued and outstanding at January 1, 20X6. During 20X6, Lan took the following actions: March 15—Declared a 3-for-1 stock split, when the fair value of the stock was $80 per share. December 15—Declared a $1.50 per share cash dividend. In Lan's statement of stockholders' equity for 20X6, what amount should Lan report as dividends? A. $1,125,000 B. $750,000 C. $375,000 D. $250,000

Explanation / Answer

(1) Common Stock before stock split = 250000 shares

        Common stock after stock split = 250000 * 3 = 750000 shares

Amount of Dividend = 750000 * $1.5 = $1125000

Option A is correct

(2) Additional Paid in capital for stock dividend

Stock Dividend shares = 5000 * 20% = 1000 shares

Market Price on the date of declaration = $13

Additional Paid in capital = 13 – 4 = $9

$9 * 1000 shares = $9000

Option D is correct

(3) Amount allocated to common shareholders:-

#Annual Preferred= already give $20000#
#Annual Common = Already give $60000
Total 80000, Pref=1/4 Comm= 3/4
Pref, two years arrear
1. Arrears = P ($20000 * 9% * 2 years) 3600
2. Current = P ($20000 * 9%) 1800
3. Matching =C(60000* 9%) 5400
Until now, 50000-3600-1800-5400=39200
4. Parti P (1/4 * 39200) 9800
5. Parti Comm (3/4 *39200) 29400

Comm= 5400 + 29400 = 34800

Option C is correct

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