Transport company in january

Assignment Help Financial Accounting

Reference no: EM13916851

Maria Martinez organized Manhattan Transport Company in January 2008. The corporation immediately issued at $8 per share one-half of its 200,000 authorized shares of $2 par value common stock. On January 2, 2009, the corporation sold at par value the entire 5,000 authorized shares of 8 percent, $100 par value cumulative preferred stock. On January 2, 2010, the company again needed money and issued 5,000 shares if an authorized 10,000 shares of no-par cumulative preferred stock for a total of $512,000. The no-par shares have a stated dividend of $9 per share. The company declared no dividends in 2008 and 2009. At the end of 2009, its retained earnings were $17,000. During 2010 and 2011 combined, the company earned a total of $890,000. Dividends of 50 cents per share in 2010 abd $1.60 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 retrained earnings, whereas dividends decrease retained earnings.)

b. Assume that on January 2, 2009, the corporation could have borrowed $500,000 at 8 percent interest on a long-term basis instead of issuing the 5,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may chose to issue cumulative preferred stock rather than finance operations with a long term debt.

What are the following solutions?

Stockholder's equity

8% cumulative preferred stock, $100 par, 5,000 shares authorized, issued and outstanding? ___________.

$9 cumulative preferred stock, no-par value, 10,000 shares authorized, 5,000 shares issued and outstanding? ______________.

Common Stock, $2 par, 200,000 shares authorized, 100,000 shares issued and outstanding: ___________.

Additional paid-in capital: Common stock? Total paid-in capital? ____________.

Retained earnings*_________.

Total stockholder's equity? ___________.

Computation of retained earnings at December 31, 2011:

Retained earnings at Dec. 31, 2009? _________.

Add: net income for 2010 and 2011? _________.

Net income for four-year period?_________.

Less: Dividends paid on 8% preferred stock? ____________.

Dividends on $9 preferred stock? __________.

Dividends on common stock? __________.

Retained earnings, December 31, 2011? _________.

Reference no: EM13916851

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