CORPORATION SIMULATION ACTIVITY 2: Corporate Stock and Dividends Stalco, Inc. re

Question

CORPORATION SIMULATION ACTIVITY 2: Corporate Stock and Dividends

Stalco, Inc. reports the following stockholders’ equity on Dec. 31, 2008

Common stock: $1 par value (350,000 shares authorized;   200,000 shares issued and outstanding)              $200,000 Paid-in capital in excess of par value, common stock           $1,400,000

Retained Earnings                $2,160,000

Total stockholders’ equity               $3,760,000

2009 TRANSACTIONS:
Jan 15  Purchased 40,000 shares of its own stock at $12 cash per share

March 5 Directors declared a $1.50 per share cash dividend payable on March 31 to the March 15 stockholders of record March 31 Paid dividends declared on March 5

Nov 11 Sold 24,000 of treasury shares at $13 per share

Nov 25 Sold 16,000 of treasury shares at $9.50 per share

Dec 1  Directors declared a $2.50 per share cash dividend payable on January 2   to the December 10 stockholders of record

Dec 31 Closed the $1,072,000 credit balance (from net income) in the Income   Summary Account to Retained Earnings

Students should use Microsoft Excel to produce answers for activity tasks, in free-form to compile your response, or research respective financial statement samples and use as a template to key into Excel.

ACTIVITY 2:

TASK A:

Prepare journal entries for the 2009 transactions:

TASK B:

Prepare a Statement of Retained Earnings for the year ended December 31, 2009

TASK C:

Prepare the Stockholders’ Equity section of the company balance sheet as of December 31, 2009

TASK 2: Jarden Company’s common stock is currently selling on a stock exchange at $90 per share, and its current balance sheet shows the following stockholders’ equity section:

Preferred stock – 8% cumulative, $____ par value, 1,500 shares   authorized, issued and outstanding    $375,000

Common stock--$____ par value, 18,000 shares authorized,   issued and outstanding      $900,000

Retained Earnings                   $1,125,000 Total stockholders’ equity                  $2,400,000

A. Determine the current market value (price) of this corporation’s common stock.

B. What are the par values of the corporation’s preferred stock and its common stock.

C. Assuming no dividends are in arrears, what are the book values per share of the (a) preferred stock and the (b) common stock?

D. If two years’ preferred dividends are in arrears, what are the book values per share of the (a) preferred stock and the (b) common stock?

E. If two years’ preferred dividends are in arrears and the preferred stock is callable at $280 per share, what are the book values per share of the (a) preferred stock and the (b) common stock?

TASK 3: CRITICAL THINKING

A. What are some factors that can contribute to a difference between the book value of common stock and its market value (price)?

B. Why is it that the book value of common stock is not always a good estimate of its market value?

Explanation / Answer

CORPORATION SIMULATION ACTIVITY 2: Corporate Stock and Dividends Stalco, Inc. re

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