E15-13 (Stock Split and Stock Dividend) The common stock of Warner Inc. is currently selling at $110 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Five million shares are issued and outstanding.
Prepare the necessary journal entries assuming the following.
(a) The board votes a 2-for-1 stock split.
(b) The board votes a 100% stock dividend.
(c) Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding.
(Dividends and Stockholders' Equity Section) Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet.
Preferred stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000
Additional paid-in capital 125,000
Retained earnings 450,000
During 2011, Elizabeth took part in the following transactions concerning stockholders' equity.
1. Paid the annual 2010 $8 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2010.
2. Purchased 2,700 shares of its own outstanding common stock for $40 per share. Elizabeth uses the cost method.
3. Reissued 700 treasury shares for land valued at $30,000.
4. Issued 500 shares of preferred stock at $105 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2011 $8 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2012.
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2011, stockholders' equity section. Assume 2011 net income was $330,000.
E16-20 (EPS: Simple Capital Structure) On January 1, 2010, Bailey Industries had stock outstanding as follows.
6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares $1,000,000
Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000
To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 170,000 common shares. The acquisitions took place as shown below.
Date of Acquisition Shares Issued
Company A April 1, 2010 60,000
Company B July 1, 2010 80,000
Company C October 1, 2010 30,000
On May 14, 2010, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
On December 31, 2010, Bailey recorded net income of $300,000 before tax and exclusive of the gain.
Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2010. Assume that the expropriation is extraordinary.