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Permabilt Corp: Stock-issues and dividends. Horizontal model to analyze transactions

5.

Common and preferred stock-issuances and dividends. Permabilt Corp. was incorporated
on January 1, 2003, and issued the following stock, for cash:
1,200,000 shares of no-par common stock were authorized; 350,000 shares were
issued on January 1, 2003, at $23 per share.

400,000 shares of $100 par value, 10.5% cumulative, preferred stock were
authorized, and 140,000 shares were issued on January 1, 2003, at $132 per
share.

Net income for the years ended December 31, 2003, 2004, and 2005, was
$5,250,000, $7,450,000, and $8,700,000, respectively.

No dividends were declared or paid during 2003 or 2004. However, on
December 17, 2005, the board of directors of Permabilt Corp. declared dividends
of $6,200,000, payable on February 9, 2006, to holders of record as of January 4,
2006.

Required:

a. Use the horizontal model (or write the entry) to show the effects of:
1. The issuance of common stock and preferred stock on January 1, 2003.
2. The declaration of dividends on December 17, 2005.
3. The payment of dividends on February 9, 2006.
b. Of the total amount of dividends declared during 2005, how much will be
received by preferred shareholders?

Attachments

Solution Preview

For part a, please check the excel file included here. (Note that I use the journal entry method to do this)

For part b) as followed:

b. Of the total amount of dividends declared during 2005, how much will be received by preferred shareholders?

Preferred shares also pay dividends which are set in some formula at issue. ...

Solution Summary

The solution provides explanations for the questions and also uses the journal entry format to demonstrate transaction for dividends.

$2.19