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Problem-1
Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $20 per share.
Required
- Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions. If an amount box required no entry, leave it blank.
a. Preferred stock is nonparticipating and noncumulative. - Preferred stock is nonparticipating and cumulative. Preferred dividends are 2 years in arrears at the beginning of the year.
- For 1(a), compute the dividend yield on the preferred stock and the common stock.
Problem-2
Carlyon Company listed the following items in its December 31, 2015, financial statements:
| Investment in Man Company bonds | $25,000 |
| Dividends payable: preferred | 4,000 |
| Dividends payable: common | 40,000 |
| Preferred stock, 8%, $100 par | 100,000 |
| Common stock, $10 par | 400,000 |
| Additional paid-in capital on preferred stock | 20,000 |
| Additional paid-in capital on common stock | 210,000 |
| Retained earnings | 270,000 |
During 2016, the following transactions occurred:
| Feb. | 2 | Paid the semiannual dividends declared on December 15, 2015. |
| Mar. | 5 | Declared a property dividend, payable to common shareholders on April 5 in Man Company bonds being held to maturity. The bonds (which have a book value of $25,000) have a current market value of $31,000. |
| Apr. | 5 | Paid the property dividend. |
| July | 6 | Declared a $4 per share semiannual cash dividend on preferred stock and a $1.10 per share semiannual dividend on common stock, to be paid on August 17. |
| Aug. | 17 | Paid the cash dividends. |
| Oct. | 15 | Declared a 2% stock dividend on common stock to be issued on December 3. The current market price is $22 per share. |
| Dec. | 3 | Issued the stock dividend. |
| 28 | Declared a $4 and $1.20 per share semiannual cash dividend on preferred and common stock, respectively, to be paid on February 15, 2017. | |
Problem-3
Rolt Company began 2016 with a $110,000 balance in retained earnings. During the year, the following events occurred:
- The company earned net income of $81,000.
- A material error in net income from a previous period was corrected. This error correction increased retained earnings by $10,500 after related income taxes of $4,500.
- Cash dividends totaling $14,000 and stock dividends totaling $18,000 were declared.
- One thousand shares of callable preferred stock that originally had been issued at $105 per share were recalled and retired at the beginning of 2016 for the call price of $115 per share.
- Treasury stock (common) was acquired at a cost of $24,000. State law requires a restriction of retained earnings in an equal amount. The company reports its retained earnings restrictions in a note to the financial statements.
Required:
- Prepare a statement of retained earnings for the year ended December 31, 2016.
Problem-4
Monona Company reported net income of $29,975 for 2016. During all of 2016, Monona had 1,000 shares of 10%, $100 par, nonconvertible preferred stock outstanding, on which the year’s dividends had been paid. At the beginning of 2016, the company had 7,000 shares of common stock outstanding. On April 2, 2016, the company issued another 2,000 shares of common stock so that 9,000 common shares were outstanding at the end of 2016. Common dividends of $17,000 had been paid during 2016. At the end of 2016, the market price per share of common stock was $17.50.
Required:
- Compute Monona’s basic earnings per share for 2016. If required, round your answer to two decimal places.
- Compute the price/earnings ratio for 2016. If required, round your answer to one decimal place.