Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Explain. L 0 4 PROBLEM 1 1 . 3 B Stockholders' Equity in a Balance Sheet 1 0 6 Joy Sun organized Ray Beam, Inc.,

Explain.
L04 PROBLEM 11.3B
Stockholders' Equity in a Balance Sheet
106
Joy Sun organized Ray Beam, Inc., in January 2008. The corporation immediately issued at $15 per share one-half of its 260,000 authorized shares of $1 par value common stock. On January 2,2009, the corporation sold at par value the entire 10,000 authorized shares of 10 percent, $100 par value cumulative preferred stock. On January 2,2010, the company again needed money and issued 5,000 shares of an authorized 8,000 shares of no-par cumulative preferred stock for a total of $320,000. The no-par shares have a stated dividend of $6 per share.
The company declared no dividends in 2008 and 2009. At the end of 2009, its retained earnings were $530,000. During 2010 and 2011 combined, the company earned a total of $1,400,000. Dividends of 90 cents per share in 2010 and $2 per share in 2011 were paid on the common stock.
Instructions
a. Prepare the stockholders' equity section of the balance sheet at December 31,2011. Include a supporting schedule showing your computation of retained earnings at the balance sheet date. (Hint: Income increases retained earnings, whereas dividends and net losses decrease retained earnings.)
b. Assume that on January 2,2009, the corporation could have borrowed $1,000,000 at 10 percent interest on a long-term basis instead of issuing the 10,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with long-term debt.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Financial Reporting And Analysis

Authors: David Young, Jacob Cohen

3rd Edition

1118470559, 9781118470558

More Books

Students also viewed these Accounting questions

Question

=+1. Which of the given are Actions and which are States of Nature?

Answered: 1 week ago