Identifying and Analyzing Financial Statement Effects of DividendsThe 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$600,000Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding350,000Paid-in capital in excess of par value—preferred stock50,000Paid-in capital in excess of par value—common stock400,000Retained earnings747,000Total 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. Balance SheetTransactionCash Asset+NoncashAssets=Liabilities+ContributedCapital+EarnedCapital Apr. 1________ ________ ________ ________ ________ Dec. 7________ ________ ________ ________ ________ Dec. 20________ ________ ________ ________ ________  Income StatementRevenue-Expenses=NetIncome________ ________ ________________ ________ ________________ ________ ________(b) Compute retained earnings for 2017 assuming that the company reports 2017 net income of $523,000.$________

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Asked Sep 26, 2019
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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
Retained earnings 747,000
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.

 
Balance Sheet
Transaction Cash Asset +

Noncash

Assets

= Liabilities +

Contributed

Capital

+

Earned

Capital

 
Apr. 1 ________   ________   ________   ________   ________  
Dec. 7 ________   ________   ________   ________   ________  
Dec. 20 ________   ________   ________   ________   ________  
 
Income Statement

Revenue

-

Expenses

=

Net

Income

________   ________   ________
________   ________   ________
________   ________   ________


(b) Compute retained earnings for 2017 assuming that the company reports 2017 net income of $523,000.
$________

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Expert Answer

Step 1

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.

Step 2

Working notes:

  1. 100% Stock dividend on outstanding common stock @5 par value= 100 % of $350,000
  2. 4% Stock dividend on outstanding common stock @17 market value = 140,000 × 4% × 17

                                                                                                             = $95,200

  1. Outstanding common share= beginning share + Issued (100% stock dividend) + 4% stock dividend on issued shares

                                               = 70,000 + 70,000 + (140,000 × 4%)

                                               = 145,600

  1. Annual cash dividend on preferred stock= 600,000 × 5%= $30,000
  2. Cash dividend of 90 cents per common share= 145,600 × 0.9

                                                                            = $131,040

  • Since no information is provided regarded income statement. Hence, income statement cannot be prepared.
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Balance sheet = Liabilities Contributed capital +350,000 +95,200 Earned capital Cash Asset +No-cash asset April 1 - 350,000 - 95,200 -161,040 Dec. 7 Dec. 20 161,040 (30,000 + 131,040)

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Step 3

Retained earnings...

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