AFM101 Chapter Notes - Chapter 12: Dividend, Stock Split, Retained Earnings

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lilacmouse857

26 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Donna Psutka

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AFSA Education

- Small stock dividends that are less than 20-25% of the outstanding shares are calculated with

market price

- Large stock dividends are calculated with average issue price

- Does not change total shareholders’ equity

Journal entry for declaration of stock dividend

Dividends declared

–

Common

Stock dividend to be issued

Journal entry for issuance and distribution of stock dividend

Stock dividend to be issued

Common shares

Stock Splits

- Stock split – an increase in the total number of authorized shares by a specified ratio; it does not

decrease retained earnings

- It is disclosed in the notes to the financial statements

- 2 for 1 stock split = company doubles the amount of outstanding shares

Preferred Shares

- Preferred shares – shares that have specified rights over common shares

o No voting rights – permits companies to raise funds without dilution common

shareholders’ control

o Less risky – priority over common shares

o Fixed dividend rate – stated value

Special features of Preferred Shares

- Convertible preferred shares – are preferred shares that are convertible to common shares at

the option of the holder

- Preferred shares could be redeemable, callable or retractable

Dividends on Preferred Shares

- Current divided preference – the feature of preferred shares that grants preferred shareholders

priority for dividends over common shareholders

- Cumulative dividend preference – feature of preferred shares that requires specified current

dividends not paid in full to accumulate for every year in which they are not paid. These

cumulative preferred dividends must be paid before any common dividends can be paid

- Dividends in arrears – are dividends on cumulative preferred shares that have not been

declared in prior years

- If shares are non-cumulative, dividends that are not declared are lost permanently

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Small stock dividends that are less than 20-25% of the outstanding shares are calculated with market price. Large stock dividends are calculated with average issue price. Journal entry for issuance and distribution of stock dividend. Stock split an increase in the total number of authorized shares by a specified ratio; it does not decrease retained earnings. It is disclosed in the notes to the financial statements. 2 for 1 stock split = company doubles the amount of outstanding shares. Preferred shares shares that have specified rights over common shares: no voting rights permits companies to raise funds without dilution common shareholders" control, less risky priority over common shares, fixed dividend rate stated value. Convertible preferred shares are preferred shares that are convertible to common shares at the option of the holder. Preferred shares could be redeemable, callable or retractable.

Related Questions

Helifex , Inc. began operations in 2010 and has the following Capital Stock:
	Helifex , Inc. Capital Stock:
	Preferred Stock:	# Shares	Stated Dividend Rate	Par value
	Authorized shares of cumulative, non-participatory preferred stock	80,000	6%	$10
	Issued shares of prefered stock	60,000
	Outstanding shares of preferred stock	30,000

	Common Stock:	# Shares
	Authorized shares of $1 par value common stock	50,000
	Issued shares of common stock	40,000
	Outstanding shares of common stock	10,000

Required:
a)	Compute the amount of Preferred Stock dividends.



b)	On January 1, 2017, the Board of Directors declared dividends of	$ 35,000

	Prepare the journal entry for the declaration of the dividends.





c)	On March 31, 2017, the dividends are disbursed to stockholders of record. Determine the allocation of dividends to Preferred and Common Stockholders.




d)	The Board of directors did not declare dividends during 2018. Determine the allocation of dividends to Preferred and Common Stockholders.

	Total dividends for Preferred Stockholders
	Total dividends for Common Stockholders

e)	On June 8, 2019 the Board of Directors declared dividends of	$110,000
	Determine the allocation of dividends to Preferred and Common Stockholders.










f)	The following year, on November 30, 2020, the board declared dividends of	$100,000
	Determine the allocation of dividends to Preferred and Common stockholders.










g)	Explain the advantages and disadvantages of investing in preferred stock.

redcoyote294

Nicole has been financing Nicoleâs Getaway Spa (NGS) using equity financing. Currently NGS has authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstanding shares include 51,000 preferred shares and 41,000 common shares.

Required:
1.	Prepare the journal entries needed for each of the transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Recently the following transactions have taken place.

a.	NGS issues 1,050 preferred shares for $11 a share.
b.	NGS repurchases 1,050 common shares for $10 a share.
c.	On November 12, the board of directors declares a $0.20 cash dividend on each outstanding preferred share.
d.	The dividend is paid December 20. 1 Record the issuance of 1,050 shares of preferred stock with no par value for a price of $11 per share. 2 Record the purchase of 1,050 previously issued common shares for a price of $10 per share. 3 Record the declaration of a $0.20 cash dividend on the shares of preferred stock outstanding. 4 Record the payment of the cash dividend to the preferred shareholders.

taupelocust530

Problem 18-12 Various shareholders' equity topics; comprehensive[LO18-1, 18-4, 18-5, 18-6, 18-7, 18-8]

Part A

In late 2015, the Nicklaus Corporation was formed. The corporatecharter authorizes the issuance of 5,000,000 shares of common stockcarrying a $1 par value, and 1,000,000 shares of $5 par value,noncumulative, nonparticipating preferred stock. On January 2,2016, 3,000,000 shares of the common stock are issued in exchangefor cash at an average price of $15 per share. Also on January 2,all 1,000,000 shares of preferred stock are issued at $30 pershare.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a particular transaction,select "No journal entry required" in the first accountfield.)

2.	Prepare the shareholders' equity section of the Nicklaus balancesheet as of March 31, 2016. (Assume net income for the firstquarter 2016 was $1,500,000.)

Part B
During 2016, the Nicklaus Corporation participatedin three treasury stock transactions:

a.	On June 30, 2016, the corporation reacquires 190,000 shares forthe treasury at a price of $17 per share.
b.	On July 31, 2016, 45,000 treasury shares are reissued at $20per share.
c.	On September 30, 2016, 45,000 treasury shares are reissued at$15 per share.

Required:

1.	Prepare journal entries to record these transactions.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

2.	Prepare the Nicklaus Corporation shareholders' equity section asit would appear in a balance sheet prepared at September 30, 2016.(Assume net income for the second and third quarter was$2,950,000.)

Part C

On October 1, 2016, Nicklaus Corporation receives permission toreplace its $1 par value common stock (5,000,000 shares authorized,3,000,000 shares issued, and 2,900,000 shares outstanding) with anew common stock issue having a $.50 par value. Since the new parvalue is one-half the amount of the old, this represents a 2-for-1stock split. That is, the shareholders will receive two shares ofthe $.50 par stock in exchange for each share of the $1 par stockthey own. The $1 par stock will be collected and destroyed by theissuing corporation.

On November 1, 2016, the NicklausCorporation declares a $0.13 per share cash dividend on commonstock and a $0.30 per share cash dividend on preferred stock.Payment is scheduled for December 1, 2016, to shareholders ofrecord on November 15, 2016.

On December 2, 2016, the NicklausCorporation declares a 1% stock dividend payable on December 28,2016, to shareholders of record on December 14. At the date ofdeclaration, the common stock was selling in the open market at $15per share. The dividend will result in 58,000 (0.01 Ã 5,800,000)additional shares being issued to shareholders.

Required:

Prepare journal entries to record the declaration and payment ofthese stock and cash dividends. (If no entry is requiredfor a transaction/event, select "No journal entry required" in thefirst account field.)

1.Record the entry for a 2-for-1 stock split.

2.Record declaration of cash dividend for common shares andpreferred shares.

3.Record the entry on date of record.

4.Record payment of cash dividend for common shares andpreferred shares.

5.Record declaration of common stock dividend.

6.Record distribution of common stock dividend.

2.	Prepare the December 31, 2016, shareholders' equity section ofthe balance sheet for the Nicklaus Corporation. (Assume net incomefor the fourth quarter was $2,450,000.)

3.	Prepare a statement of shareholders' equity for NicklausCorporation for 2016. (Amounts to be deducted should beindicated with a minus sign. Enter your answers inthousands.)

AFM101 Chapter Notes - Chapter 12: Dividend, Stock Split, Retained Earnings

AFM101 Full Course Notes

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