Chapter 12 Mastery (Mastery)

1. MP.12.01.ALGO

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1. Mastery Problem: Corporations: Organization, Stock Transactions, and Dividends

   Pranks, Inc.

   Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. Youve been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

   Number of common shares authorized	900,000
   Number of common shares issued	750,000
   Par value of common shares	$20
   Par value of cumulative preferred shares	$30
   Paid-in capital in excess of par-common stock	$7,000,000
   Paid-in capital in excess of par-preferred stock	$0
   Total retained earnings before the stock dividend is declared	$33,500,000
   No treasury share have been reissued.

   		Preferred Dividends		Common Dividends
   Year	Total Cash Dividends	Total	Per Share	Total	Per Share
   Year 1	30,000	30,000	0.20	0	0.00
   Year 2	54,000	54,000	0.36	0	0.00
   Year 3	96,000	51,000	0.34	45,000	0.09
   Year 4	120,000	45,000	0.3	75,000	0.15
   Year 5	135,000	45,000	0.3	90,000	0.18
   Year 6	195,000	45,000	0.3	150,000	0.3

   Cash Dividends

   The accounting manager for the company prepared the schedule of cash dividends paid from Year 1 to Year 6 on the Pranks, Inc. panel. However, one of the reasons for Pranks, Inc.s missing information is that the manager is away on vacation and is unreachable by phone, because he is backpacking on a remote island that does not have cell phone reception. Management would like you to determine some information from the data youve collected regarding its outstanding stock.

   Fill in the following answers.

   How many shares of common stock are outstanding? fill in the blank 1e7434f5bfb6f80_1

   How many shares of preferred stock are outstanding? fill in the blank 1e7434f5bfb6f80_2

   What is the preferred dividend as a percent of par? fill in the blank 1e7434f5bfb6f80_3%

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   Partially correct

   Additional Questions

   1. After completing the Cash Dividends panel, answer the following question.

   Does Pranks, Inc. have any treasury stock? How can you tell?

   Yes, because the number of shares issued is greater than the number of shares outstanding.Yes, because the number of shares authorized is greater than the number of shares issued.No, because the common stock cash dividend is not always zero.No, because the preferred stock cash dividend is always greater than zero.Yes, because the number of shares issued is greater than the number of shares outstanding.

   2. In which years has Pranks, Inc. paid cumulative preferred dividends in arrears?

   a.	Year 1
   b.	Year 2
   c.	Year 3
   d.	Year 4
   e.	Year 5
   f.	Year 6

   a.b.d.e.b and cd and eb and c

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   1. Review the definitions and relationships between authorized, issued, and outstanding shares of stock.

   2. Review the definition of cumulative preferred dividends in arrears. When did Pranks, Inc. not pay the full amount of preferred dividends due? When did they make up these amounts?

   Stock Dividend

   The company declared a 2% common stock dividend on December 1, and would like you to compute the following pieces of missing information. The market value of the common shares is $24 on December 1, and is $30 on the actual distribution date of the stock, December 31.

   Fill in the missing information in the following table, using the information given and your work on the other panels. All before items are before the stock dividend was declared. All after items are after the stock dividend was declared and closing entries were recorded at the end of the year.

   Total paid-in capital before the stock dividend
   Total retained earnings before the stock dividend
   Total stockholders equity before the stock dividend
   Total paid-in capital after the stock dividend
   Total retained earnings after the stock dividend
   Total stockholders equity after the stock dividend

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