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    Flameco Corp., Sammy Co., Branco, Inc.

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    Common and preferred stock - issuances and dividends. Flameco Corp. was incorporated on January 1, 2003, and issued the following stock for cash.

    Prepare an Income Statement. The following information is available from the accounting records of Sammy Co. for the year ended December 31, 2004

    Prepare statement of cash flows (using indirect method) using balance sheet data. Presented below are comparative balance sheets for Branco, Inc., at January 31 and February 28, 2004

    For full problems, please see the attached file.

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    Common and preferred stock?issuances and dividends. Flameco Corp. was incorporated
    on January 1, 2003, and issued the following stock, for cash:

    1 1,500,000 shares of $6 par per share common stock were authorized;
    700,000 shares were issued on January 1, 2003, at
    $25 per share.
    2 250,000 shares of $ 60 par value, 8.00% cumulative, preferred stock were authorized,
    120,000 shares were issued on January 1, 2003, at $100 per share

    3 Net income for the years ended December 31, 2003, 2004, and 2005, was
    $4,250,000 , $5,500,000 , and $6,500,000 , respectively.

    4 No dividends were declared or paid during 2003 or 2004. However, on
    December 1, 2005, the board of directors of Flameco Corp. declared dividends of
    $4,000,000 , payable on January 31, 2006, to holders of record as of January 4, 2006

    Required:
    a. Prepare journal entries for the following
    1. The issuance of common stock and preferred stock on January 1, 2003.
    2. The declaration of dividends on December 1, 2005.
    3. The payment of dividends on January 31, 2006.
    b. Of the total amount of dividends declared during 2005, how much will be
    received by preferred shareholders?

    a. Journal Entries

    Jan. 1, 2003 Cash 17,500,000
    Common Stock 4,200,000
    (700,000 shares x $6/share)
    Additional paid-in capital in excess of par value 13,300,000
    (700,000 shares x ($25/share - $6/share))

    We debit the cash account, which shows the amount company received by
    multiplying the number of common stock issued with the price per share.
    Then, when the common stock is sold for more than its par value, the amount
    received in excess of the par value is recorded as "additional paid-in capital."
    So, we calculate the excess amount with the shares issued.

    Jan. 1, 2003 Cash 12,000,000
    Preferred Stock 7,200,000
    (120,000 shares x $60/share)
    Additional paid-in capital in excess of par value 4,800,000
    (120,000 shares x ($100/share - $60/share))

    We debit the cash account, which shows the amount company received by
    multiplying the number of preferred stock issued with the price per share.
    Then, when the preferred stock is sold for more than its par value, the amount
    received in excess of the par value is recorded as "additional paid-in capital."
    So, we calculate the excess amount with the shares issued.

    Dec. 1, 2005 Preferred dividends 1,728,000
    Common dividends 2,272,000
    Dividends payable 4,000,000

    When preferred stock is cumulative, it provides that if all or part of the required
    dividend on preferred stock is not paid during a given year, the unpaid dividend
    accumulates and carries forward to succeeding years. So, we need to calculate
    the dividend for preferred stock by multiplying the par value with the dividend
    percentage. The accumulated amount of unpaid dividends as well as current ...

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