Identifying and Analyzing Financial Statement Effects of Dividends
The stockholders' equity of Hammel Company at December 31, 2016, is shown below.
|5% preferred stock, $100 par value, 10,000 shares authorized; 6,000 shares issued and outstanding||$600,000|
|Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding||350,000|
|Paid-in capital in excess of par value—preferred stock||50,000|
|Paid-in capital in excess of par value—common stock||400,000|
|Total stockholders' equity||$2,147,000|
The following transactions, among others, occurred during 2017:
Apr. 1 Declared and issued a 100% stock dividend on all outstanding shares of common stock. The market value of the stock was $14 per share.
Dec. 7 Declared and issued a 4% stock dividend on all outstanding shares of common stock. The market value of the stock was $17 per share.
Dec. 20 Declared and paid (1) the annual cash dividend on the preferred stock and (2) a cash dividend of 90 cents per common share.
Please complete the blanks and show the calculations
(a) Use the financial statement effects template to indicate the effects of these separate transactions.
Use negative signs with answers, when appropriate.
(b) Compute retained earnings for 2017 assuming that the company reports 2017 net income of $523,000.
Balance sheet helps in keeping the records of assets, liabilities and capital of the company at the end of every period.
Retained earnings are a part of profit which is retained in the business. It helps the company to grow and become more efficient in the future.
= 70,000 + 70,000 + (140,000 × 4%)
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