Please show all math work. Thank you! 2. Preparing a stockholders\' equity secti

Question

Please show all math work. Thank you!

2. Preparing a stockholders' equity section ASSUME 2 YEARS OF DIVIDENDS IN ARREARS ON THE PREFERRED STOCK When Prince Corporation was incorporated in 1998, authorization was obtained to issue 200,000 shares of $5 par value common stock and 5,000 shares of 8% cumulative preferred stock. The preferred stock has a par value of $100 and is callable at $110 per share. All the preferred stock was issued at S105 per share, and 120,000 shares of the common stock were sold for S8 per share. The operations of the company resulted in a net loss of $18,000 in 1998 and net income of $120,000 in 1999. In 2000, net income was $348,000, and the cash position was sufficient to allow the board of directors to declare a cash dividend of $1 per share to the common shareholders, as well as satisfy all preferred stock dividend requirements Complete in good form the stockholders' equity section of Prince Corporation's balance sheet at December 31, 2000. (Hint: First determine the total amount of dividends declared in 2000.) Stockholders' equity: 8% cumulative preferred stock, $100 par value. callable at S110, 5,000 shares authorized and issued Common stock, S5 par value, 200,000 shares authorized, 120,000 shares issued Total paid-in capital Total stockholders' equity

Explanation / Answer

Solution:

Total Dividend declared on preferred stock in Year 2000 = Arrear of dividend for Year 1998 and 1999 + Dividend for Year 2000 = Dividend for total 3 years

= (5000*$100)* 8% * 3 = $120,000

Dividend on Common Stock = 120,000 common share *$1 = $120,000

Total amount of Dividend declared in Year 2000 = $120000 +$120000 = $240,000

Retained earnings at Dec. 31, 2000 = Total of Income in 1998,1999 and 2000 - Dividends declared in Year 2000

= -$18,000 + $120,000 + $348,000 - $240,000 = $210,000

Prince Corporation Balance Sheet (Partial) Particulars Amount Stockholders' Equity: 8% Cumulative Preferred Stock, $100 par value, 5000 shares authorized and issued $500,000.00 Common Stock, $5 par value, 200000 shares authorized, 120,000 shares issued $600,000.00 $1,100,000.00 Paid-in Capital in Excess of Par Value- Preferred Stock [5000*($105-100)] $25,000.00 Paid-in Capital in Excess of Par Value- Common Stock [120000*($8-$5)] $360,000.00 $385,000.00 Total Paid In capital $1,485,000.00 Add: Retained earnings $210,000.00 Total Stockholders' equity $1,695,000.00

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