Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of

Question

Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You’ve been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

You’ve been able to retrieve the following information so far:

Preferred Dividends

Common Dividends

The company declared a 2% common stock dividend on December 1, and would like you to compute the following pieces of missing information. The market value of the common shares is $26.00 on December 1, and is $30.00 on the actual distribution date of the stock, December 31.

Fill in the missing information in the following table, using the information given and your work on the other panels. All “before” items are before the stock dividend was declared. All “after” items are after the stock dividend was declared and closing entries were recorded at the end of the year.

Number of common shares authorized 800,000 Number of common shares issued 650,000 Par value of common shares $20 Par value of cumulative preferred shares $30 Paid-in capital in excess of par-common stock $7,000,000 Paid-in capital in excess of par-preferred stock $0 Total retained earnings before the stock dividend is declared $33,500,000

Explanation / Answer

Ans

Common shares outstanding=600,000(540000/0.09)
Preferred stock outstanding=100,000(20000/0,2)
Preferred dividend as % of par=20000/(30*100000)=0.67%

Paid in capital after stock dividend=(2%*600000*(30+11.67))+22000000=
=22500040
Retained earnings=33,500,000

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