revenue of the period? (b) What is the effect on stock-
holders’ equity?- What is the primary purpose of a stock split?
- Explain how shareholders can avoid earnings per share di-
lution from common stock issuances? - What are the conditions for declaring and paying a cash
dividend? - The dates associated with a cash dividend are October 1,
November 15, and December 30. Identify each date. - A corporation with both cumulative preferred stock and
common stock outstanding has a substantial credit bal-
ance in its retained earnings account at the beginning of
the current fiscal year. Although net income for the cur-
rent year is sufficient to pay the preferred dividend of
$100,000 each quarter and a common dividend of $300,000
each quarter, the board of directors declares dividends
only on the preferred stock. Suggest possible reasons for
passing the dividends on the common stock. - An owner of 200 shares of Dunston Company common
stock receives a stock dividend of four shares. (a) What
is the effect of the stock dividend on the stockholder’s
proportionate interest (equity) in the corporation? (b)
How does the total equity of 204 shares compare with the
total equity of 200 shares before the stock dividend? - a.Where should a declared but unpaid cash dividend be
reported on the balance sheet?
b.Where should a declared but unissued stock dividend
be reported on the balance sheet? - What is the purpose of the statement of stockholders’
equity? - What is other comprehensive income, and how is it
disclosed?
516 Chapter 11 Stockholders’ Equity: Capital Stock and Dividends
EXERCISES
Use either the Internet or the newspaper to determine the following for The Coca-Cola Company:a. What stock exchange trades the common stock?
b. What is the exchange abbreviation for the common stock?
c. What is the annual dividend per share?
d. What is the current market price?
e. What is the current dividend yield? Round percent to one decimal place.Fiji Inc., a developer of radiology equipment, has stock outstanding as follows: 25,000 shares of
1% cumulative preferred stock of $100 par, and 250,000 shares of $50 par common. During its
first five years of operations, the following amounts were distributed as dividends: first year,
none; second year, $40,000; third year, $80,000; fourth year, $120,000; fifth year, $140,000.
Calculate the dividends per share on each class of stock for each of the five years.Exercise 11-1
Market for common stock
Goals2, 9Exercise 11-2
Dividends per share
Goal 2
Preferred stock, 3rd year:
$1.40- A stockbroker advises a client to “buy cumulative pre-
ferred stock....With that type of stock,...[you] will
never have to worry about losing the dividends.” Is the
broker right? - What is the difference between the primary and sec-
ondary markets? - If common stock of $100 par is sold for $130, what is the
$30 difference between the issue price and par called? - What are some factors that influence the market price of
a corporation’s stock? - When a corporation issues stock at a premium, is the pre-
mium income? Explain. - Land is acquired by a corporation for 15,000 shares of its
$25 par common stock, which is currently selling for $70
per share on a national stock exchange. What accounts
should be credited to record the transaction? - Indicate which of the following accounts would be re-
ported as part of paid-in capital on the balance sheet:
a.Retained Earnings
b.Common Stock
c. Preferred Stock - a.In what respect does treasury stock differ from unis-
sued stock?
b.How should treasury stock be presented on the bal-
ance sheet? - A corporation reacquires 5,000 shares of its own $40 par
common stock for $370,000, recording it at cost. (a) What
effect does this transaction have on revenue or expense
of the period? (b) What effect does it have on stockhold-
ers’ equity? - The treasury stock in Question 14 is resold for
$400,000. (a) What is the effect on the corporation’s