On December 31, 2011, the stockholders’ equity section of Sophia

On December 31, 2011, the stockholders’ equity section of Sophia Company’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

The following are selected transactions involving stockholders’ equity in 2012:

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 an average 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.

July 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 the journal entries to record the transactions.

2. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2012. Net loss for 2012 was $436,000.

3. Compute the book value per share for preferred and common stock (including common stock distributable) on December 31, 2011 and 2012, using end-of-year shares outstanding. What effect would you expect the change in book value to have on the market price per share of the company’s stock?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Dividend
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...
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...

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