On December 31, 2010, the stockholders equity section of Tsang Corporations balance sheet appeared as follows: Contributed

Question:

On December 31, 2010, the stockholders’ equity section of Tsang Corporation’s balance sheet appeared as follows:

Contributed capital

Common stock, $8 par value, 200,000 shares

authorized, 60,000 shares issued

and outstanding ........... $ 480,000

Additional paid-in-capital ........ 1,280,000

Total contributed capital ........ $ 1,760,000

Retained earnings ............ 824,000

Total stockholders’ equity ........ $ 2,584,000

The following are selected transactions involving stockholders’ equity in 2011. On January 4, the board of directors obtained authorization for 20,000 shares of $40 par value noncumulative preferred stock that carried an indicated dividend rate $4 per share and was callable $42 per share. On January 14, the company sold 12,000 shares of the preferred stock at $40 per share and issued another 2,000 in exchange for a building valued at $80,000. On March 8, the board of directors declared a 2-for-1 stock split on the common stock. On April 20, after the stock split, the company purchased 3,000 shares of common stock for the treasury at an average price of $12 per share; 1,000 of these shares subsequently were sold on May 4 at an average price of $16 per share. On July 15, the board of directors declared a cash dividend of $4 per share on the preferred stock and $0.40 per share on the common stock. The date of record was July 25. The dividends were paid on August 15. The board of directors declared a 15 percent stock dividend on November 28, when the common stock was selling for $20. The date of record for the stock dividend was December 15, and the dividend was to be distributed on January 5.

Required

1. Record the above transactions in Journal form.

2. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2011. Net loss for 2011 was $218,000.

3. Compute the book value per share for preferred and common stock (including common stock distributable) on December 31, 2010 and 2011, using end-of-year shares outstanding. What effect would you expect the change in book value to have on the market price per share of the company’s stock?

Common Stock
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