At 31 st of December 2019, John owned 25 of the common stock capital of a company called Empires Investment Ltd The company focuses on the local real estate market and shows increasing profits year after year At the beginning of the year 2020 the company presented the following Balance sheet assets cash 2 005 000,00 land 200 000,00 buildings 1 200 000,00 acc depr buildings 200 000,00 real state available for sale 2 500 000,00 construction in progress 2 300 000,00 total assets 8 005 000,000 liabilities 3 250 000,00 long term note payable 1 000 000,00 acconts payable 2 250 000,00 owner equity 4 755 000,00 capital stock (4 000 000 shares with 1$ par value) 2 000 000,00 eratined earnings 2 755 000,00 total liabilities owners equity 8 005 000,00 During the first months of the year, John heard the company made the following operations that may affect the situation of the ownership of the company On 24 of January the company decided a 10 stock dividend distribution to its stockholders on record at 25 st of February, to be paid on 15 of March The market value of the shares was estimated to 10 per share on 24 of January On 1st of March the company purchased 200 000 of its owns shared at a price of 10 per share In order to invest in a new project, the company decided to increase its financing issuing on 4 th of April 1,000,000 preferred stock with a 15 face value Said preferred stock will offer a 20 cumulative dividend On 1 st of May, the company reissued 50 of the stocks purchased on 1 st of March at a price per share of 12 The forecast presented by the board of the company during the last stockholders meeting showed the following perspectives of net income taking into account the new projects to be carried on in 2020 Empire's Investments Ltd Net Income forecast Year Net Income Div share 2020 120 000,00 0,06 2021 350 000,00 0,18 2022 12 200 000,00 6,10 Total 12 670 000,00 6,34 Average Year 2,11 John, who is a conservative investor, is worried about the different movements in the stockholders equity section of the company registered during the first months of the year and asks you how the different operations described below may affect his investment into the company ANSWERS QUESTIONS 1 AND 2 In particular, John would like to know the following What are the journal entries to be made by the company to register all the operations mentioned below (40 points) (ALREADY DONE) Calculate the amount of cash dividend payment for preferred stock to be expected at the end of the years 2020, 2021 and 202 Justify your answers and calculations (10 points) Assuming the forecast prepared by the directors of the company is correct regarding the net income, would the cash dividends to be expected remain the same taking into account the different movements described below Calculate the amount of cash dividend payment per share of common stock to be expected at the end of the years 2020, 2021 and 2022 Justify your answers and calculations (25 points) Instead of issuing preferred stock on 4 th of April, the company had the possibility to issues 15,000 of 8 Bonds of 1,000 face value Calculate the earning per share of common stock considering the company would have issued the bond instead of the preferred stock (explain your calculation) Do you agree with the board of Directors choice for the preferred stocks (Justify your answer) (25 points) JUST NEED QUESTION 3 AND 4, 1 AND 2 ARE ALREADY DONE ASSETS Cash Land Buildings Accumulated Depreciation Real Estate available for Sale Construction in Progress 200 500 000 20 000 000 120 000 000 20 000 000 250 000 000 230 000 000 800 500 000 100 000 000 225 000 000 LIABILITIES Long term Note Payable Accounts Payable OWNER'S EQUITY Capital Stock (4000000 shares with 1$ Par Value) Retained Earnings 200 000 000 275 500 000 800 500 000 Credit Date 24 1 20 Empire's investment Ltd Journal Entries Account Titles Retained Earnings (400,000 shares x 10$) Capital Stock Dividend Distributable Paid in capital in Excess of Par Shares issued as dividend 10 of current outstanding Debit 4 000 000 400 000 3 600 000 1 3 20 2 000 000 Capital Stock Cash (payback of shares 200000 x 10$) 2 000 000 15 3 20 400 000 Capital Stock Dividend Distributable Capital Stock 400 000 4 4 20 15 000 000 Cash 20 Cumulative Preferred Stock Issue of Preferred Stock (1,000,000 shares) 15 000 000 1 200 000 1 5 20 Cash Capital Stock (100,000 x 1$) Paid in Capital in Excess of Par (100,00 x 11$) Reissue of Buy Back Stock 100 000 1 100 000 for the end of years 2020,2021 and 2022 Amount of Cash Dividend to Preferred Stock Year Net Income Dividend on Preferred Stock (20 ) 2020 120 000,00 3 000 000,00 2021 350 000,00 3 000 000,00 20222 12 200 000,00 3 000 000,00 12 670 000,00 9 000 000,00 Dividend on Capital Stock 264 000 792 000 26 840 000 27 896 000 Cash Dividend Paid on Preferred Stock 3 000 000 3 000 000 3 000 000 9 000 000 ASSETS Cash Land Buildings Accumulated Depreciation Real Estate available for Sale Construction in Progress 200 500 000 20 000 000 120 000 000 20 000 000 250 000 000 230 000 000 800 500 000 100 000 000 225 000 000 LIABILITIES Long term Note Payable Accounts Payable OWNER'S EQUITY Capital Stock (4000000 shares with 1$ Par Value) Retained Earnings 200 000 000 275 500 000 800 500 000 Credit Date 24 1 20 Empire's investment Ltd Journal Entries Account Titles Retained Earnings (400,000 shares x 10$) Capital Stock Dividend Distributable Paid in capital in Excess of Par Shares issued as dividend 10 of current outstanding Debit 4 000 000 400 000 3 600 000 1 3 20 2 000 000 Capital Stock Cash (payback of shares 200000 x 10$) 2 000 000 15 3 20 400 000 Capital Stock Dividend Distributable Capital Stock 400 000 4 4 20 15 000 000 Cash 20 Cumulative Preferred Stock Issue of Preferred Stock (1,000,000 shares) 15 000 000 1 200 000 1 5 20 Cash Capital Stock (100,000 x 1$) Paid in Capital in Excess of Par (100,00 x 11$) Reissue of Buy Back Stock 100 000 1 100 000 for the end of years 2020,2021 and 2022 Amount of Cash Dividend to Preferred Stock Year Net Income Dividend on Preferred Stock (20 ) 2020 120 000,00 3 000 000,00 2021 350 000,00 3 000 000,00 20222 12 200 000,00 3 000 000,00 12 670 000,00 9 000 000,00 Dividend on Capital Stock 264 000 792 000 26 840 000 27 896 000 Cash Dividend Paid on Preferred Stock 3 000 000 3 000 000 3 000 000 9 000 000

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At 31 st of December 2019, John owned 25% of the common stock capital of a company called Empires Investment Ltd. The company focuses on

At 31^st of December 2019, John owned 25% of the common stock capital of a company called Empires Investment Ltd.

The company focuses on the local real estate market and shows increasing profits year after year.

At the beginning of the year 2020 the company presented the following Balance sheet:

assets

cash 2.005.000,00

land 200.000,00

buildings 1.200.000,00

acc depr buildings -200.000,00

real state available for sale 2.500.000,00

construction in progress 2.300.000,00

total assets 8.005.000,000

liabilities 3.250.000,00

long term note payable 1.000.000,00

acconts payable 2.250.000,00

owner equity 4.755.000,00

capital stock (4.000.000 shares with 1$ par value) 2.000.000,00

eratined earnings 2.755.000,00

total liabilities + owners equity 8.005.000,00

During the first months of the year, John heard the company made the following operations that may affect the situation of the ownership of the company:

On 24 of January the company decided a 10% stock dividend distribution to its stockholders on record at 25^st of February, to be paid on 15 of March. The market value of the shares was estimated to 10 per share on 24 of January.

On 1st of March the company purchased 200.000 of its owns shared at a price of 10 per share

In order to invest in a new project, the company decided to increase its financing issuing on 4^th of April 1,000,000 preferred stock with a 15 face value. Said preferred stock will offer a 20% cumulative dividend.

On 1^st of May, the company reissued 50% of the stocks purchased on 1^st of March at a price per share of 12.

The forecast presented by the board of the company during the last stockholders meeting showed the following perspectives of net income taking into account the new projects to be carried on in 2020.

Empire's Investments Ltd
Net Income forecast

Year	Net Income	Div/ share
2020	120.000,00	0,06
2021	350.000,00	0,18
2022	12.200.000,00	6,10
Total	12.670.000,00	6,34
Average / Year		2,11

John, who is a conservative investor, is worried about the different movements in the stockholders equity section of the company registered during the first months of the year and asks you how the different operations described below may affect his investment into the company.

ANSWERS QUESTIONS 1 AND 2:

In particular, John would like to know the following:

What are the journal entries to be made by the company to register all the operations mentioned below (40 points) (ALREADY DONE)
Calculate the amount of cash dividend payment for preferred stock to be expected at the end of the years 2020, 2021 and 202 ? Justify your answers and calculations. (10 points)
Assuming the forecast prepared by the directors of the company is correct regarding the net income, would the cash dividends to be expected remain the same taking into account the different movements described below? Calculate the amount of cash dividend payment per share of common stock to be expected at the end of the years 2020, 2021 and 2022. ? Justify your answers and calculations. (25 points)
Instead of issuing preferred stock on 4^th of April, the company had the possibility to issues 15,000 of 8% Bonds of 1,000 face value. Calculate the earning per share of common stock considering the company would have issued the bond instead of the preferred stock (explain your calculation). Do you agree with the board of Directors choice for the preferred stocks? (Justify your answer). (25 points)

JUST NEED QUESTION 3 AND 4, 1 AND 2 ARE ALREADY DONE!

ASSETS Cash Land Buildings Accumulated Depreciation Real Estate available for Sale Construction in Progress 200.500.000 20.000.000 120.000.000 20.000.000 250.000.000 230.000.000 800.500.000 100.000.000 225.000.000 LIABILITIES Long term Note Payable Accounts Payable OWNER'S EQUITY Capital Stock (4000000 shares with 1$ Par Value) Retained Earnings 200.000.000 275.500.000 800.500.000 Credit Date 24/1/20 Empire's investment Ltd. Journal Entries Account Titles Retained Earnings (400,000 shares x 10$) Capital Stock Dividend Distributable Paid in capital in Excess of Par Shares issued as dividend 10% of current outstanding Debit 4.000.000 400.000 3.600.000 1/3/20 2.000.000 Capital Stock Cash (payback of shares 200000 x 10$) 2.000.000 15/3/20 400.000 Capital Stock Dividend Distributable Capital Stock 400.000 4/4/20 15.000.000 Cash 20% Cumulative Preferred Stock Issue of Preferred Stock (1,000,000 shares) 15.000.000 1.200.000 1/5/20 Cash Capital Stock (100,000 x 1$) Paid in Capital in Excess of Par (100,00 x 11$) Reissue of Buy Back Stock 100.000 1.100.000 for the end of years 2020,2021 and 2022 Amount of Cash Dividend to Preferred Stock Year Net Income Dividend on Preferred Stock (20%) 2020 120.000,00 3.000.000,00 2021 350.000,00 3.000.000,00 20222 12.200.000,00 3.000.000,00 12.670.000,00 9.000.000,00 Dividend on Capital Stock 264.000 792.000 26.840.000 27.896.000 Cash Dividend Paid on Preferred Stock 3.000.000 3.000.000 3.000.000 9.000.000 ASSETS Cash Land Buildings Accumulated Depreciation Real Estate available for Sale Construction in Progress 200.500.000 20.000.000 120.000.000 20.000.000 250.000.000 230.000.000 800.500.000 100.000.000 225.000.000 LIABILITIES Long term Note Payable Accounts Payable OWNER'S EQUITY Capital Stock (4000000 shares with 1$ Par Value) Retained Earnings 200.000.000 275.500.000 800.500.000 Credit Date 24/1/20 Empire's investment Ltd. Journal Entries Account Titles Retained Earnings (400,000 shares x 10$) Capital Stock Dividend Distributable Paid in capital in Excess of Par Shares issued as dividend 10% of current outstanding Debit 4.000.000 400.000 3.600.000 1/3/20 2.000.000 Capital Stock Cash (payback of shares 200000 x 10$) 2.000.000 15/3/20 400.000 Capital Stock Dividend Distributable Capital Stock 400.000 4/4/20 15.000.000 Cash 20% Cumulative Preferred Stock Issue of Preferred Stock (1,000,000 shares) 15.000.000 1.200.000 1/5/20 Cash Capital Stock (100,000 x 1$) Paid in Capital in Excess of Par (100,00 x 11$) Reissue of Buy Back Stock 100.000 1.100.000 for the end of years 2020,2021 and 2022 Amount of Cash Dividend to Preferred Stock Year Net Income Dividend on Preferred Stock (20%) 2020 120.000,00 3.000.000,00 2021 350.000,00 3.000.000,00 20222 12.200.000,00 3.000.000,00 12.670.000,00 9.000.000,00 Dividend on Capital Stock 264.000 792.000 26.840.000 27.896.000 Cash Dividend Paid on Preferred Stock 3.000.000 3.000.000 3.000.000 9.000.000