Original Octave Inc. (OOI) is a widely held, publicly traded company that designs equipment for tuning musical
Question:
The preferred share dividend was not paid in 2016.
Several transactions affecting shareholders' equity took place during the fiscal year ended December 31, 2017 and are summarized in chronological order as follows.
1. Exchanged 10,000 common shares for prototype piano tuning equipment. The equipment was valued at $100,000 by an independent appraiser. On the transaction date, OOI's shares were actively trading at $10 per share.
2. Purchased and retired 10,000 common shares at $12.50 per share.
3. Paid the annual dividend on the preferred shares. The common shares were then paid a $2 per share dividend. Original Octave's net income for 2017 was $65,000.
Instructions
(a) Prepare journal entries for each of the three transactions.
(b) Calculate the company's payout ratio for 2017. Would the payout ratio for 2017 be different if the preferred share dividend was paid in 2016?
(c) Comment on the results of your analysis from the perspective of a potential investor.
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy