After establishing their company’s fiscal year-end to be October 31, Beau and Ma
ID: 2414932 • Letter: A
Question
After establishing their company’s fiscal year-end to be October 31, Beau and Marge began operating Fine Foods Inc. on November 1, 2015. The company had the following selected transactions during its first fiscal year of operations.
I NEED HELP FIGURING OUT THE STARTING BALANCE FOR NOVEMBER 1, 2015. THANK YOU!
Jan. 1 Issued an additional 800 preferred shares to Natalie’s brother for $4,000 cash. June 30 Repurchased 750 shares issued to the lawyer, for $500 cash. The lawyer had decided to retire and wanted to liquidate all of her assets. Oct. 15 The company had a very successful first year of operations and as a result declared dividends of $28,000, payable November 15, 2016. (Indicate the amounts payable to the preferred stockholders and to the common stockholders.) Oct. 31 The company earned revenues of $472,500 and incurred expenses of $416,500 (including the $750 legal expense from November 1 but excluding income tax). Record income tax expense, assuming the company has a 20% income tax rate. Prepare the retained earnings statement for the year ended October 31, 2016. (List items that increase retained earnings first.) COOKIE&COFFEE; CREATIONS INC. Retained Earnings Statement For the Year Ended October 31, 2016 Balance, November 1, 2015 # 28,000 Add. Net Income / (Loss) 44,800 72,800 Less Cash Dividends-Common 11,200 Cash Dividends-Preferred 16,800 28,000 Balance, October 31, 2016 44,800Explanation / Answer
The amount of dividend declared by the company is $28,000 which we have to distribute to the common stockholders and to the preffered shareholders.
As your have asked me for calculating the beginning balance of the common stockholders, regarding that we have to assume here as 750 stocks have been issued at the beginning as on 1st Nov., 2015. ( We dont have enough information to calculate the same.)
the preffered shares have been issued on 1st Jan.2016 therefore, dividend on 800 preference shares will be given for 10 months(Jan to 31st Oct.) which will be equivalent to 666.67 preference shares. (800/12)*10
The common stockholders of 750 shares issued on 1st Nov. 2015 have repurchased by the company on 30th June, therefore the company will pay dividend for 8 months which will be equivalent to 500 shares(750/12)*8
the total amount of dividend to be paid is $28,000. the amount of dividend to be paid to preferece shareholders and common stockholders is calculated as under: ('x' denotes the dividend per unit)
28,000=666.67x+500x
x=28,000/1,166.67
=$24 per unit
The preference shareholders will get the dividend of $16,000 (666.67*$24) and the common stockholders will get the dividend of $12,000 (500*$24).
(Note:The picture of retained earnings account of Cookie and Coffee creation inc. is irrelevant according to me.)
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