A how much of the 30000 will go to the preferred

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a. How much of the $30,000 will go to the preferred shareholders? Remember that cumulative means that the preferred shareholders get all of the past dividends that they were not paid plus the current dividends. ________________________________________________________________________ b. How much of the $30,000 will go to the common shareholders? _________________________________________________________________________________ _________________________________________________________________________________ c. What is the entry on the declaration date? Asset s = Liabilitie s + Stockholders’ Equity Revenu e - Expense s = Net Income Contributed Capital Retained Earnings = + 0 - = Chapter 8 Handout, Page 3 of 8
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Paying Dividends Example 6: The dividends of $30,000 declared in the previous example were paid to the shareholders. Assets = Liabilities + Stockholders’ Equity Revenu e - Expense s = Net Income Contributed Capital Retained Earnings = + 0 - = Declaring Dividends – Non-cumulative Preferred Stock and Common Stock If the preferred stock in the previous example was Non-cumulative (instead of cumulative) the preferred shareholders would only receive $8,000 for 2011 and the common shareholders would split the remaining $22,000. Treasury Stock Companies purchase shares of their own stock for several reasons: o To have stock on hand to _____________________ to employees for compensation plans o To return cash to the shareholders using a way that is more flexible than paying cash dividends o To __________________________________________ the company's earnings per share o To _____________________________________ the cash needed to pay future dividends o To reduce the chances of a hostile takeover Treasury stock o Is considered issued stock but NOT outstanding stock. o Has no voting or dividend rights. o Is a contra-equity account. o Reduces total shareholders’ equity on the balance sheet. o Is recorded at cost. Purchasing Treasury Stock Accounting for the purchase: a. Purchase of treasury stock reduces assets (cash) and stockholders’ equity. b. Treasury stock is shown as a reduction in total stockholders’ equity (a contra-equity account). Example 7: A company original issued 100,000 shares of $1 par common stock for $15 per share. A few years later the company decides to buy back 1,000 shares of common stock at $50 per share. Assets = Liabilities + Stockholders’ Equity Revenu e - Expense s = Net Income Chapter 8 Handout, Page 4 of 8
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Contributed Capital Retained Earnings = + 0 - = Selling Treasury Stock a. No gains or losses are recorded when a company buys or sells treasury stock. b. Most common way to account for treasury stock is at cost. Example 8: From the previous example on purchasing treasury stock, the company had repurchased 1,000 shares of common stock back for $50 per share. A year later the company sells half of the 1,000 treasury stock shares for $60 each. a. How much cash would the company receive when reselling the treasury stock? ______________ b. How would the entry for the sale of 500 treasury stocks impact the accounting equation? Asset s = Liabilitie s + Stockholders’ Equity Revenu e - Expense s = Net Income Contributed Capital Retained Earnings = + 0 - = c. Why is Treasury Stock increased for $25,000? We have to use the cost from the repurchase of the treasury stock.
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