Identifying and Analyzing Financial Statement Effects of Dividends The stockhold

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Identifying and Analyzing Financial Statement Effects of Dividends
The stockholders' equity of Hammel Company at December 31, 2016, is shown below.

The following transactions, among others, occurred during 2017:
Apr. 1 Declared and issued a 100% stock dividend on all outstanding shares of common stock. The market value of the stock was $14 per share.
Dec. 7 Declared and issued a 4% stock dividend on all outstanding shares of common stock. The market value of the stock was $17 per share.
Dec. 20 Declared and paid (1) the annual cash dividend on the preferred stock and (2) a cash dividend of 90 cents per common share.

(a) Use the financial statement effects template to indicate the effects of these separate transactions.

Use negative signs with answers, when appropriate.

Balance Sheet

Noncash

Assets

Contributed

Capital

Earned

Capital

Income Statement

  Net

Income

(b) Compute retained earnings for 2017 assuming that the company reports 2017 net income of $523,000.
$Answer

5% preferred stock, $100 par value, 10,000 shares authorized; 6,000 shares issued and outstanding $600,000 Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding 350,000 Paid-in capital in excess of par value—preferred stock 50,000 Paid-in capital in excess of par value—common stock 400,000 Retained earnings 747,000 Total stockholders' equity $2,147,000

Explanation / Answer

1-Apr large stock dividend is always issued at par 70,000 shares *$5= 350000 7-Dec 4% stock dividend is small dividend 140,000*4% = 5600 5600 shares issued at market value of $17= 95200 20-Dec dividend preferred = 600,000*5%= 30000 common =(140000+5600)*.9= 131040 total dividends 161040 total dividends 606240 Non contributed earned revenue Expense net TRN Cash cash liabilities capital capital income Asset Assets 1-Apr 350,000 -350,000 7-Dec 95,200 -95,200 20-Dec -161,040 -161,040 b) Retained earnings for 2017 opening retained earnings 747,000 Add:Net income for the year 523,000 subtotal 1,270,000 less:total dividends 606240 retained earnings for 2017 663,760

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