Lecture Notes - Assign 8

Outstanding shares of 6 100par preferred stock are

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Outstanding shares of 6% $100par preferred stock are 1,000 shares and 20,000 shares of $2par common stock. First: Preferred stock: 6%*$100=$6. $6*1,000shares=$6,000. Second: Common stock: Receives the remainder. $50,000 – 6,000 = $44,000. Dividend per share: $6 preferred, $2.2 common ($44,000/20,000shares) Cash dividend: 1. Date of declaration: Dr Cash dividend Cr Dividend payable 2. Date of record: No entry 3. Date of payment Dr Cash dividend Cr Cash Stockholder’s Equity Paid-in Capital Preferred Stock XXXXX Excess of issue price over par XXXXX XXXXX Common Stock XXXXX Excess of issue price over par XXXXX XXXXX Total Paid-in Capital XXXXX Retained Earnings XXXXX Total XXXXX Deduct treasury stock (XXXXX) Total Stockholders' Equity XXXXX
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Stock Split Increases the number of shares, does not change the equity section. No journal entry E.g. 10,000 shares of $18par common stock with a current market value of $52. A 3 for 1 stock split. o Shares after the split: 10,000 * 3 = 30,000 shares o Par value after the split: $18par / 3 = $6par o Market value after the split: $52 / 3 = $17.3333 Market value before split: 10,000shares * $52 = $520,000 Market value after the split: 30,000shares * $17.3333 = $520,000 No change in TOTAL value. Why stock split? o Increases shares outstanding (more shares for investors) o Lowers market value (more attractive to investors) o
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