Chapter 8, Problem 20P

a)

To determine

Organize the transactions data in accounts under an accounting equation.

Explanation of Solution

Accounting equation:  Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below.

$\text{Assets = Liabilities + Stockholders' Equity}$

Organize the transactions data in accounts under an accounting equation:

Table (1)

Working note:

1. Calculate the preferred dividend amount of dividend declared in 2014:

2,000, 4% preferred shares are outstanding at $80 par.

$\begin{array}{c}\begin{array}{l}\text{Cash dividend declared}\\ \text{for preferred stock in 2014}\end{array}\}=\left[\begin{array}{l}\text{Outstanding number of preferred shares}\times \\ \text{Percentage of dividend}\times \text{Par value per share}\end{array}\right]\\ =\left[\left(2,000\text{shares}\right)\times 4\%\times \$80\right]\\ =\$6,400\end{array}$

2. Calculate the amount of total dividend declared in 2015:

First calculate the amount of cash dividend declared for preferred stock in 2015:

$\begin{array}{c}\begin{array}{l}\text{Cash dividend declared}\\ \text{for preferred stock in 2015}\end{array}\}=\left[\begin{array}{l}\text{Outstanding number of preferred shares}\times \\ \text{Percentage of dividend}\times \text{Par value per share}\end{array}\right]\\ =\left[\left(2,000+4,000\text{ shares}\right)\times 4\%\times \$80\right]\\ =\$19,200\end{array}$

Then calculate the amount of cash dividend declared for common stock in 2015:

$\begin{array}{c}\begin{array}{l}\text{Cash dividend declared}\\ \text{for common stock in 2015}\end{array}\}=\left[\begin{array}{l}\text{Outstanding number of common shares}\times \\ \text{Amount of dividend declared}\end{array}\right]\\ =\left[\left(\begin{array}{l}20,000\text{ shares}\text{+}25\text{,000 shares }-\\ 1,000\text{shares}\end{array}\right)\times \$1\right]\\ =\$44,000\end{array}$

Now, calculate the amount of total dividend declared in 2015:

$\begin{array}{c}\text{Total dividend declared in 2015 = }\left[\begin{array}{l}\text{Cash dividend declared for preferred stock in 2015+}\\ \text{Cash dividend declared for common stock in 2015}\end{array}\right]\\ =\$19,200+\$44,000\\ =\$63,200\end{array}$

b)

To determine

Prepare the stockholders’ equity section of the balance sheet at December 31, 2014.

Explanation of Solution

Stockholders’ equity section: It is a part of the balance sheet. It reports the stockholders’ equity balances as on the balance sheet date.

Prepare the stockholders’ equity section of the balance sheet at December 31, 2014:

Corporation S
December 31, 2014
Particulars	Amount ($)	Amount ($)
Stockholders’ Equity:
Preferred Stock, $80 par value, 4%  cumulative, 50,000 shares authorized,  2,000 shares issued and outstanding	$160,000
Common Stock, $10 par value, 100,000 shares authorized, 45,000 shares issued and outstanding	360,000
Paid-In Capital in Excess of Par-Preferred Stock	20,000
Paid-In Capital in Excess of Par-Common Stock	130,000
Total Paid-In Capital	670,000
Retained Earnings	108,600
Total Stockholders’ Equity		$778,500

Table (2)

c)

To determine

Prepare the balance sheet at December 31, 2015.

Explanation of Solution

Balance sheet: Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Preparethe balance sheet at December 31, 2015:

Corporation M
Balance Sheet
As of December 31, 2015
Assets	Amount	Amount
Cash	$1,207,600
Total Assets		$1,207,600
Liabilities and stockholders' equity
Liabilities:
Dividends Payable	$63,200
Total Liabilities		$63,200
Stockholders’ Equity:
Preferred Stock, $80 par value, 4%  cumulative, 50,000 shares authorized,  6,000 shares issued and outstanding	$480,000
Common Stock, $10 par value, 100,000 shares authorized, 45,000 shares issued and 44,000(3) outstanding	360,000
Paid-In Capital in Excess of Par-Preferred Stock	68,000
Paid-In Capital in Excess of Par-Common Stock	130,000
Total Paid-In Capital	1,038,000
Retained Earnings	120,400
Less: Treasury stock	(14,000)
Total Stockholders’ Equity		1,144,400
Total Liabilities and Stockholders’ Equity		$1,2079,600

Table (3)

Working note:

3. Determine the number of shares has been issued and outstanding at the end of 2014 and 2015:

Schedule of Number of Shares of Common Stock
	Shares Issued	Shares Outstanding
2014
January 5	25,000	25,000
April 5	20,000	20,000
Totals	45,000	45,000
2015
May 5		(1,000)
Totals	45,000	44,000

Table (4)