Problem 11-5: On January 1, 2016, Frederiksen Inc.’s stockholders’ equity category appeared as follows: Preferred stock, $80 par value, 7%, 3,000 shares issued and outstanding             $240,000 Common stock, $10 par value, 15,000 shares issued and outstanding                     150,000 Additional pain-in capital--Preferred                                                                          60,000 Additional paid-in capital--Common                                                                        225,000 Total contributed capital                                                                                          $675,000 Retained earnings                                                                                                   2,100,000 Total stockholders’ equity                                                                          $2,775,000 The preferred stock is noncumulative and nonparticipating. During 2016, the following transactions occurred: On March 1, declared a cash dividend of $16,800 on preferred stock. Paid the dividend on April 1. On June 1, declared a 5% stock dividend on common stock. The current market price of the common stock was $18. The stock was issued on July 1. On September 1, declared a cash dividend of $0.50 per share on the common stock; paid the dividend on October 1. On December 1, issued a 2-for-1 stock split of common stock when the stock was selling for $50 per share. Explain each transaction’s effect on the stockholders’ equity accounts and the total stockholders’ equity. Develop the stockholders’ equity category of the December 31, 2016, balance sheet. Assume that the net income for the year was $650,000. Write a paragraph that explains the difference between a stock dividend and a stock split.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Problem 11-5: On January 1, 2016, Frederiksen Inc.’s stockholders’ equity category appeared as follows:

Preferred stock, $80 par value, 7%, 3,000 shares issued and outstanding             $240,000

Common stock, $10 par value, 15,000 shares issued and outstanding                     150,000

Additional pain-in capital--Preferred                                                                          60,000

Additional paid-in capital--Common                                                                        225,000

Total contributed capital                                                                                          $675,000

Retained earnings                                                                                                   2,100,000

Total stockholders’ equity                                                                          $2,775,000

The preferred stock is noncumulative and nonparticipating. During 2016, the following transactions occurred:

  1. On March 1, declared a cash dividend of $16,800 on preferred stock. Paid the dividend on April 1.
  2. On June 1, declared a 5% stock dividend on common stock. The current market price of the common stock was $18. The stock was issued on July 1.
  3. On September 1, declared a cash dividend of $0.50 per share on the common stock; paid the dividend on October 1.
  4. On December 1, issued a 2-for-1 stock split of common stock when the stock was selling for $50 per share.
  1. Explain each transaction’s effect on the stockholders’ equity accounts and the total stockholders’ equity.
  2. Develop the stockholders’ equity category of the December 31, 2016, balance sheet. Assume that the net income for the year was $650,000.
  3. Write a paragraph that explains the difference between a stock dividend and a stock split.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Accounting for stockholder's equity
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education