before any dividends are paid on the common stock.During its first five years of business (2011 through 2015), the company earned income totaling$3,700,000 and paid dividends of 50 cents per share each year on the common stock outstanding.On January 2, 2013, the company purchased 20,000 shares of its own common stock in theopen market for $400,000. On January 2, 2015, it reissued 10,000 shares of this treasury stock for$250,000. The remaining 10,000 were still held in treasury at December 31, 2015.instructionsa. Prepare the stockho!ders' equity section of the balance sheet for Herndon Industries atDecember 31, 2015. Include supporting schedules showing (1) your computation of any paid-in capital on treasury stock and (2) retained earnings at the balance sheet date. (Hint: Incomeincreases retained earnings, whereas dividends reduce retained earnings. Dividends are notpaid on shares of stock held in treasury.)b. As of December 31, compute Herndon's book value per share of common stock. (Hint: Pookvalue per share is computed only on the shares of stock outstanding.)c. At December 31, 2015, shares of the company's common stock were trading at $30. Explainwhat would have happened to the market price per share had the company split its stock 3-for-1at this date. Also explain what would have happened to the par value of the common stock andto the number of common shares outstanding.Problem Set BConnectaccoUntiNcEarly in 2012, Searfoss, Inc., was organized with authorization to issue 2,000 shares cf $130 parvalue preferred stock and 300,000 shares of $1 par value common stock. Five hundred shares ofthe preferred stock were issued at par, and 80,000 shares of common stock were sold at S15 pershare. The preferred stock pays a 10 percent cumulative dividend.During the first four years of operations (2012 through 2015), the corporation earned a total of$1,950,000 and paid dividends of 40 cents per share in each year on its outstanding common stock.Instructionsa. Prepare the stockholders' equity section of the balance sheet at December 31, 2015. Includea supporting schedule showing your computation of the amount of retained earningsreported. Assume the call price of preferred stock is $110 per share as of December 31, 2015.(Hint: Income increases retained earnings, whereas dividends decrease retained earnings.)b. Are there any dividends in arrears on the company's preferred stock at December 31, 2015?Explain your answer.Assume that interest rates increase steadily from 2012 through 2015. Would you expect themarket price of the company's preferred stock to be higher or lower than its call price of SI10at December 21, 2015? (The call price is the amount the company must pay to repurchase theshares from the stockholders.)с.

Stockholders' equity is the amount of assets remaining in a business after all liabilities have been…

a. Prepare the stockholders' equity section of the balance sheet for December 31, 2015. Include supporting schedules showing (1) your computation of any paid- in capitai on treasury stock and (2) retained earnings at the balance sheet date. (Hint: Income increases retained earnings, whereas dividends reduce retained earnings. Dividends are not paid on shares of stock held in treasury.) b. As of December 31, compute Herndon's book value per share of common stock. (Hint: Pook value per share is computed only on the shares of stock outstanding.) c. At December 31, 2015, shares of the company's common stock were trading at $30. Explain what would have happened to the market price per share had the company split its stock 3-for-1 at this date. Also explain what would have happened to the par value of the common stock and to the number of common shares outstanding.

a. Prepare the stockholders' equity section of the balance sheet for December 31, 2015. Include supporting schedules showing (1) your computation of any paid- in capitai on treasury stock and (2) retained earnings at the balance sheet date. (Hint: Income increases retained earnings, whereas dividends reduce retained earnings. Dividends are not paid on shares of stock held in treasury.) b. As of December 31, compute Herndon's book value per share of common stock. (Hint: Pook value per share is computed only on the shares of stock outstanding.) c. At December 31, 2015, shares of the company's common stock were trading at $30. Explain what would have happened to the market price per share had the company split its stock 3-for-1 at this date. Also explain what would have happened to the par value of the common stock and to the number of common shares outstanding.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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