Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 11 Stockholders’ Equity: Capital Stock and Dividends 523

Lemonds Corp. manufactures mountain bikes and distributes them through retail outlets in

Oregon and Washington. Lemonds Corp. has declared the following annual dividends over a

six-year period: 2003, $40,000; 2004, $18,000; 2005, $24,000; 2006, $27,000; 2007, $65,000; and 2008,

$54,000. During the entire period, the outstanding stock of the company was composed of

25,000 shares of cumulative, 6% preferred stock, $20 par, and 40,000 shares of common stock,

$1 par.

Instructions

1. Calculate the total dividends and the per-share dividends declared on each class of stock for
   each of the six years. There were no dividends in arrears on January 1, 2003. Summarize the
   data in tabular form, using the following column headings:

Total Preferred Dividends Common Dividends

Year Dividends Total Per Share Total Per Share

2003 $40,000

2004 18,000

2005 24,000

2006 27,000

2007 65,000

2008 54,000

2. Calculate the average annual dividend per share for each class of stock for the six-year
   period.


3. Assuming that the preferred stock was sold at par and common stock was sold at $8 at the
   beginning of the six-year period, calculate the average annual percentage return on initial
   shareholders’ investment, based on the average annual dividend per share (a) for preferred
   stock and (b) for common stock.

Diamond Optics produces medical lasers for use in hospitals. The following accounts and their

balances appear in the ledger of Diamond Optics on September 30 of the current year:

Preferred 5% Stock, $100 par (20,000 shares authorized, 12,000 shares issued) $1,200,000

Paid-In Capital in Excess of Par—Preferred Stock 180,000

Common Stock, $25 par (100,000 shares authorized, 72,000 shares issued) 1,800,000

Paid-In Capital in Excess of Par—Common Stock 240,000

Retained Earnings 3,572,500

ACCOUNTING APPLICATION PROBLEMS

Problem 11-1A

Dividends on preferred and

common stock

Goal 2

1. Common dividends in
   2003: $10,000

Exercise 11-27

Dividend yield

Goal 9

eBay Inc.developed a Web-based marketplace at http://www.ebay.com, in which individuals

can buy and sell a variety of items. eBay also acquired PayPal, an online payments system that

allows businesses and individuals to send and receive online payments securely. In a recent

annual report, eBay published the following dividend policy:

We have never paid cash dividends on our stock, and currently anticipate that we will continue

to retain any future earnings to finance the growth of our business.

Given eBay’s dividend policy, why would an investor be attracted to its stock?

Problem 11-2A

Stock transaction for
corporate expansion

Goal 3