Determine the income under each of the following equity theories: Proprietary theory, Entity theory (orthodox view), Entity theory (unorthodox view), Residual theory
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Revenues $ 1,000,000
Operating Expenses
- Cost of goods sold $ 400,000
- Depreciation 100,000
- Salaries and wages 200,000
Bond interest (8% debentures sold at maturity value of $1,000,000) 80,000
Dividends declared on 6% preferred stock (par value $500,000) 30,000
Dividends declared of $5 per share on common stock (20,000 shares outstanding) 100,000
Determine the income under each of the following equity theories:
Proprietary theory
Entity theory (orthodox view)
Entity theory (unorthodox view)
Residual theory
Would any of your answers change if the preferred stock is convertible at any time at the ratio of 2 preferred shares for 1 share of common stock?
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Hello
Please find the solution below.
thanks
Rajender
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SOLUTION:
Revenues 1,000,000
Less
operating expenses
- cost of goods 400,000
- Depreciation 100,000
- Salaries and Wages 200,000
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Net operating profit 300,000 .............. (1)
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Less-Bond Interest 80,000
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220,000 .............. (2)
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Less- Dividend on (-) 30,000
Preferred Stock (Given)
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190,000 .............. (3)
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Less-Dividend declared 100,000
...
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