【正文】 ntions to buy shares of their stock. It is basically a transaction that is an alternative to issuing dividends. If the goal is to facilitate stockholders in their desires to enhance their cash positions without mitting to cash dividends every quarter going forward, it is not a source of operating gains and losses.1028 Your friend is onto something. Par value and the related concept of stated value both have some legal significance in various states. However, the truth is that the number of states and individual panies for whom it matters is small. For practical purposes, this text would probably not cover the topic if it were not so mon in published financial statements.1029 Strictly speaking, this plan does not make sense. If a stock is split or a large stock dividend is issued (more than 25%), the price per share should usually decline in proportion with the new issue. The pany has no more resources than it had before and if each of our shares represents a smaller percentage of ownership, we should expect the value of a share to drop proportionately. However, practically speaking, over the recent past, this has been a reasonably successful strategy. It is hard to explain why. Perhaps it suggests that management’s decision provides new information. If management did not expect things to keep going well, they would not undertake this step. Thus, the act of issuing a split or dividend says, “I am rather sure things will keep going well, as they have been.” 1030 (5 min.) There were 1,750,000 shares issued and outstanding, and 1,000,000 unissued shares: Issued and outstanding: 2,000,000 – 250,000 = 1,750,000 Unissued: 3,000,000 – 2,000,000 = 1,000,000 Summary (not required) Number of Shares Authorized 3,000,000 Unissued (1,000,000) Issued 2,000,000 Deduct: Shares held in treasury (250,000) Issued and outstanding 1,750,0001031 (5 min.) (Amounts in millions.) Issued and outstanding: 2,097 – 758 = 1,339 shares Unissued: 4,688 – 2,097 = 2,591 shares Summary (not required): (in millions) Number of Shares Authorized 4,688 Unissued (2,591) Issued 2,097 Deduct: Shares held in treasury (758) Issued and outstanding 1,3391032 (20 min.) See Exhibit 1032 on the following page.419Chapter 10 Stockholders’ EquityEXHIBIT 1032Liquidation of Claims Under Various Alternatives(In Thousands) Total Cash Proceeds to be Distributed Account Balances $1,400 $1,100 $800 $600 $400 $200Accounts payable $ 300 $ 300 $ 300 $300 $300 $240* $120*Unsubordinated debentures 200 200 200 200 200 160* 80*Subordinated debentures 300 300 300 300 100Preferred stock ($20 par value and $24 liquidating value per share) 100 120 120 Common stock and retained earnings 300 480 180Total liabilities and shareholders’ equity $1,200 Total cash proceeds distributed $1,400 $1,100 $800 $600 $400 $200* Ratio of 60:40 because of claims of $300,000 and $200,000, respectively.1033 (5–10 min.) Amounts are in millions of yen.1. Issue price = 165。 – 165。 Preferred Dividends ($ – $.01) 1,500 = 37,485。 100 = %3.Beginning retained earnings+Net ine–Preferred dividends–Common dividends=Ending retained earnings $ + $12 – $ – Common dividends = $69 Common dividends = $7 Using a Taccount, let X = Common dividends Retained EarningsBalance X12Balance69 X = $71043 (10 min.) Dollar amounts (except per share amount) are in thousands.Rate of return on mon equity = (Net ine – Preferred dividends) Average of (Total stockholders’ equity – Liquidating value of preferred stock) = ($2,400 – $400) 247。 Earnings per share of mon stock = $ 247。 mon stock at $25 per share. The par value is $4 per share. Cash 5,000Dividend ine 5,000 To record receipt of cash dividends at $1 per share. Stock dividends: No journal entry, but a memorandum 。 4,000 = $Note that the book value is lower than the market value. This is typical. The shareholders are paying for earning power rather than for assets. 1044 (15–25 min.) The dividends payable item is not part of stockholders’ equity.ROSELLI CORPORATIONStatement of Stockholders’ EquityDecember 31, 20X86% cumulative preferred stock, $40 par value, callable at $42, authorized 100,000 shares, issued and outstanding,100,000 shares $4,000,000Common stock, $ par value, authorized million shares, issued million shares of which 60,000 shares are in the treasury 3,000,000Additional paidin capital: Preferred $1,000,000 Common 9,000,000 10,000,000*Retained earnings 12,000,000 Subtotal $29,000,000Deduct: Cost of 60,000 shares of mon stock reacquired and held in treasury (4,000,000)Total stockholders’ equity $25,000,000* Many presentations would not show the detailed breakdown of par value and additional paidin capital for preferred and mon stocks. Preferred stock would be shown as the sum of par and additional paidin capital of $5,000,000. Similarly, mon would be $12,000,000.1045 (10–15 min.) You may wish to use a balance sheet equation to show the overall effects of each item. 1. 0 5. 0 8. – $1,000 2. 0 6. – $50,000 9. + $1,200 3. + $600,000 7. 0 10. + $ 800 4. 01046 (15 min.)1. 20X7 and 20X8 preferred dividends must be paid before any mon dividends can be paid. Dividends are not paid on treasury stock. Preferred dividends = .06 $10 (52,136 – 11,528) 2 = $48,730 Common dividends = $.04 (1,322,850 – 93,091) = $49,190 Retained earnings 48,730 Cash 48,730 To record the declaration and payment of preferred dividends for 20X7 and 20X8. Retained earnings 49,190 Cash 49,190 To record the declaration and payment of mon dividends of $.04 per