# Accounting: Stock Market

Topics: Stock market, Stock, Dividend Pages: 15 (2470 words) Published: July 16, 2013
ACC 112

Solutions to

CHAPTER 13 HANDOUT
Corporations: Organization, Capital Stock Transactions and Dividends

Certain material used with permission of South-Western Publishing

HOW DO YOU ACCOUNT FOR ORGANIZATION COSTS?

Example: A company incorporates on 9/1/08 and incurs organization expenses of \$4,000 attorney fees, \$3,000 accounting fees, and \$3,000 stock printing costs.

•Journal entry required on 9/1/08

Organization Costs (() 10,000
Cash (() 10,000

•How much amortization expense should be recorded on 12/31/08?

\$10,000 / 5 years = \$2,000 per year * 4/12 = \$667

Amortization Expense, Organization Costs (() 667
Organization Costs (() 667

•How much amortization expense should be recorded on 12/31/09?

\$10,000 / 5 years = \$2,000

•Journal entry required on 12/31/09

Amortization Expense, Organization Costs (()2,000
Organization Costs (()2,000

EXAMPLE:
XYZ Corporation is authorized to sell 1 million shares of common stock; 750,000 shares have been issued, and 50,000 shares have been reacquired by XYZ. How many shares are outstanding?

EXAMPLE: If we issue 12%, \$200 par value Preferred Stock, what is the annual dividend per share?

\$200 par * 12% = \$24 per year per share

EXAMPLE:
Part 1:
Belson Corporation has 10,000 common shareholders and 5,000 preferred shareholders. The preferred stock has a \$5 dividend rate. Two years of dividends are currently in arrears. Assume that the preferred stock is cumulative and nonparticipating. Belson has \$155,000 to distribute in the form of dividends. Use this information to calculate the dividends distributed to the preferred and common shareholders.

Preferred Common Total
Shareholders Shareholders Distributed Dividends in arrears (5,000 x \$5 x 2)\$50,000 \$50,000 Regular dividend 25,000 75,000
Remainder \$80,000 155,000
Totaldividends paid\$75,000\$80,000

Per share dividends \$15 \$8

Part 2: Assume the same facts above except the preferred stock is NONCUMULATIVE.

Preferred Common Total
Shareholders Shareholders Distributed
Regular dividend \$25,000 25,000
Remainder \$130,000 155,000
Total dividends paid \$25,000 \$130,000

Per share dividends \$5 \$13

Part 3: Assume the same facts above except there is only \$65,000 of dividends to be paid by Belson Corporation under each of the following assumptions:

a)There is one year of preferred dividends in arrears. The preferred stock is cumulative and nonparticipating.

Belson Corporation
Preferred stock is cumulative and nonparticipating.
Dividend = \$65,000

Preferred CommonTotal
Shareholders Shareholders Distrib.

Dividends in arrears
(5,000 ( \$5 ( 1 year)\$25,000\$25,000

Regular dividend
(5,000 ( \$5)25,00050,000

Remainder to common\$15,00065,000

Total dividends paid\$50,000\$15,000

Per share dividends\$10\$1.50

b) There are three years of preferred dividends in arrears. The preferred stock is noncumulative and nonparticipating.

Belson Corporation
Preferred stock is nonparticipating and noncumulative.
Dividend = \$65,000

PreferredCommonTotal

Regular dividend
(5,000 ( \$5)\$25,000\$25,000

Remainder to common\$40,00065,000

Total dividends paid\$25,000\$40,000...