Solutions to Practice Problem 4 – Chapter 11A. Preferred stock-holders are entitled to: $10*21,000*8% = $16,800 of the dividendeach year. In part A, the preferred shares are not cumulative, and therefore are only eligible for 16,800 resulting from the current year’s dividend. The common shareholders will receive $25,000-$16,800 = $8,200B. In this case, the preferred shares are cumulative. Therefore, they are eligible to receivea. The annual dividend of $16,800 for 2000 and 2001. b. The annual dividend for the current year, 2002. However, since 3*$16,800 > $25,000, the preferred shareholders will not get the entire dividend that they are entitled to. The $25,000 of declared dividend will all go to the preferred shareholders. However, they will also be owed $16,800 (current year) + S8,600 (the part of 2001’s dividend that was not paid yet). C. Now, the dividend is higher ($75,000). The preferred shareholders will receive theentire three-years worth of dividends ($50,400). The common shareholders will receive $75,000-$50,400= 24,600.Solutions to Practice Problem 5 – Chapter 11a. Dr: Retained earnings 50,000 10,000*$10*50%Cr: Common Stock 50,000b. Dr: Treasury stock 2,200Cr: Cash 2,200c. Dr: Retained earnings 19,800Cr: Cash 19,800d. Dr: Revenues XCr: Expenses YCr: Retained earnings 30,000The shareholders’ equity section (remember that we had some amounts in each account atthe beginning of each period):Common Stock 150,000Additional paid-in capital 50,000Treasury stock (2,200)Retained earnings 120,200Solutions to Practice Problem 6 – Chapter 11This solution assumes that the stock dividend was 40%. Some of you may have notes that say 10%. a. Dr: Retained earnings 10,000Cr: Dividends payable 10,000b. Dr: Dividends payable 10,000Cr: Cash 10,000c. Dr: Retained earnings 120,000 20,000*40%*15Cr: Common stock 120,000 8,000*15d. No Entrye. Dr: Retained earnings 21,000 0.5*42,000Cr: cash 21,000Note that after the stock split, the number of shares has increased by 50% (a 3-for-2 split) and therefore we now have 28,000*1.5=42,000. The 28,000 is a result of the 40% stock dividend we had in part
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