The stockholders\' equity of Hammel Company at December 31, 2016, is shown below

Question

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.

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

Working Notes:

Apr1: stock dividend = 70000 x 100% x $14 = $980000

Dec 7: stock dividend = (70000+70000)*4%*$17 = $95200

Dec 20:

Dividend on preferred stock = 6000 x $100 x 5% = $30000

Dividend on Common Stock = (70000*2+70000*2*4%)*$0.9 = $131040

None of the transactions will affect the income statement

Balance Sheet Transaction Cash Asset + Noncash = Liabilities + Contributed + Earned Assets Capital Capital Apr. 1 + = + $     9,80,000 + $   -9,80,000 Dec. 7 + = + $        95,200 + $      -95,200 Dec. 20 $ -1,61,040 + = + + $   -1,61,040 Total $ -1,61,040 + = + $   10,75,200 + $ -12,36,240

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