F1-M4 SHE Part 2

Question 1

What date decrease RE by the amount of the Divd?
1/15/Year 1 declared annual cash divid on CS FY ended 1/1/Year 1
2/9/Year 1 divid paid to stock holders, recorded as of 1/28/Year 1

Answer 1

1/15/Year 1

The date of declaration is the date of the BoD formally approves a divd. A liability is created (Divd Pbl), and RE is reduced (debited).

Question 2

$400k Divd includes a liquidating divd of ?
1/2/Year 2 Co. BoD declared cash divd of $400k to stockholders of record on 1/18/Year 2 and Pbl on 2/10/Year 2
The divd is permissible under law in the state where Lake is incorporated

100,000
500,000
150,000
300,000

Liquidating Divd (amount in excess of RE balance)

Answer 2

400,000 Total cash divd declared
-300,000 Less: RE
100,000 Liquidating Divd

Question 3

How would a 5% stock divd affect each of the following?

Answer 3

Assets: No effects
Equity: No effects
RE: Decrease

RULE: A stock divd (Less than 20-25% of the stock o/s) transfers the FMV of the stock divd at declaration date from RE to capital stock and PIC.

There is no effect on total stockholder’s equity because all transfers take place within stockholder’s equity

Question 4

Year 1 IS, what mount Plack report as divd income?
2/14/Year 1 Plack purchase 10k shares (2% ownership) of Ty Corp.
4/30/Year 1 Plack rec’d a stock divd of 2k shares, when the market value per share was $35
Ty paid a cash divd of $2/share on 12/15/Year 1

Answer 4

Dividend Income = No. of Shares * Divd per Share
((10,000 + 2,000) * $2)
24,000

Question 5

What is YE balance of total equity?
Co. uses accrual method of accounting started at the fiscal year with Assets $600k and Liab $400k
A/R $250,000, of which $8k remained uncollected at YE
Incurred expenses of $90k, of which $72k was paid in cash
Stock divd valued at $10k was declared and issued to stockholders during the year

Answer 5

$200,000 Beg. Equity Bal ($600k - $400k)
160,000 NI gets closed to RE ($250k credit sales - $90k expenses)
$360,000 YE balance of Total Equity