Mastery Problem: Corporations: Organization, Stock Transactions, and Dividends

Pranks, Inc.

Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You've been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

Number of common shares authorized 800,000

Number of common shares issued 650,000

Par value of common shares $20

Par value of cumulative preferred shares $30

Paid-in capital in excess of par-common stock $7,000,000

Paid-in capital in excess of par-preferred stock $0

Total retained earnings before the stock dividend is declared $33,500,000

No treasury share have been reissued.

Preferred Dividends Common Dividends

year Total Cash Dividends Total Per Share Total Per Share

Year 1 30,000 30,000 0.20 0 0.00

year 2 54,000 54,000 0.36 0 0.00

year 3 96, 000 51,000 0.34 45,000 0.09

year 4 120,000 45,000 0.3 75,000 0.15

year 5 135,000 45,000 0.3 90,000 0.18

year 6 195,000 45,000 0.3 150,000 0.3

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