On December 31, 2014, the stockholders equity section of Delux Corporations balance sheet appeared as follows: Contributed

Question:

On December 31, 2014, the stockholders’ equity section of Delux Corporation’s balance sheet appeared as follows:

Contributed capital:

Common stock, $8 par value, 400,000 shares authorized, 120,000 shares

issued and outstanding ...................$ 960,000

Additional paid-in capital ................. 2,560,000

Total contributed capital ...................$3,520,000

Retained earnings .................... 1,648,000

Total stockholders’ equity .................$5,168,000

Selected transactions involving stockholders’ equity in 2015 follow.

Jan. 4 The board of directors obtained authorization for 40,000 shares of $40 par value noncumulative preferred stock that carried an indicated dividend rate of $4 per share and was callable at $42 per share.

14 The company sold 24,000 shares of the preferred stock at $40 per share and issued another 4,000 in exchange for a building valued at $160,000.

Mar. 8 The board of directors declared a 2-for-1 stock split on the common stock.

Apr. 20 After the stock split, the company purchased 6,000 shares of common stock for the treasury at a price of $12 per share.

May 4 The company sold 2,000 of the shares purchased on April 20, at an average price of $16 per share.

July 15 The board of directors declared a cash dividend of $4 per share on the preferred stock and $0.40 per share on the common stock.

25 Date of record.

Aug. 15 Paid the cash dividend.

Nov. 28 The board of directors declared a 15 percent stock dividend when the common stock was selling for $20 per share to be distributed on January 5 to stockholders of record on December 15.

Dec. 15 Date of record for the stock dividend.

Required

1. Prepare journal entries to record these transactions.

2. Prepare the stockholders’ equity section of Delux’s balance sheet as of December 31, 2015. Net loss for 2015 was $436,000.

3. Compute the book value per share for preferred and common stock (including common stock distributable) on December 31, 2014 and 2015, using end-of-year shares outstanding. (Round to the nearest cent.) What effect would you expect the change in book value to have on the market price per share of the company’s stock?

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