Dividend Distribution For Power Corporation Shares

dividend Distributionpower Corporation Has The Following Shares Outs

dividend Distributionpower Corporation Has The Following Shares Outs

1 Dividend distribution: power Corporation has the following shares outstanding: 15,000 shares of $50 per value, 8% preferred stock and 50,000 shares of $5 par value common stock. During its first three years in business, the firm declared no dividends in the first year, $280,000 of dividends in the second year, and $60,000 of dividends in the third year. a. If the preferred stock is cumulative, determine the total amount of dividends paid to each class of stock in each of the three years. b. If the preferred stock is noncumulative, determine the total amount of dividends paid to each class of stock in each of the three years.

2 Cash and non-cash share issuances: Chavoy Corporation was organized on July 1. The company’s charter authorizes 100,000 shares of $10 par value common stock. On August 1, the attorney who helped organize the corporation accepted 800 shares of Chavoy common stock in settlement for the services provided (the services were valued at $9600). On August 15, Chavoy issued 5000 common shares for $75,000 cash. On October 15, Chavoy issued 3000 common shares to acquire a vacant land site appraised at $48,000. Prepare the journal entries to record the stock issuances on August 1, August 15, and October 15.

3 Stockholders equity: transactions and balance sheet presentation: tunic corporation was organized on April 1, with an authorization of 25,000 shares of its 6%, $50 par value preferred stock and 200,000 shares of $5 par value common stock. During April, the following transactions affecting stockholders equity occurred. Apr 1 - Issued 80,000 shares of common stock at $15 cash per share 3 - Issued 2000 shares of common stock to attorneys and promoters in exchange for their services and organizing the corporation. The services were valued at $31,000. 8 - Issued 3000 shares of common stock in exchange for equipment with fair rocket value of $48,000. 20 - Issued 6000 shares of preferred stock for cash and $55 per share. Required a. Prepare journal entries to record the above transactions. b. Prepare the stockholders equity section of the balance sheet at April 30. Assume that the net income for April is $49,000.

4 Cash flow from operating activities (indirect method): Cairo Company had a $21,000 net loss from operations. Depreciation expense for the year was $8600 and a dividend of $6000 was declared and paid. The balances of the current asset and current liability account at the beginning and end of the year are as follows: End beginning Cash $3500 $7000 Accounts Receivable $16,000 $25,000 Inventory $50,000 $53,000 Prepaid expenses $6000 $9000 Accounts payable $12,000 $8000 A cured liabilities $5000 $7600 Did Cairo companies operating activities provide or use cash? Use the indirect method to determine your answer.

5 Statement of cash flows (indirect method): The Wolf Company’s income statement and comparative balance sheets at December 31 of 2013 in 2012 are shown below: Wolf Company Income statement For the year ended December 31, 2013 Sales revenue $635,000 cost of goods sold $430,000 wages expense $86,000 insurance expense $8000 depreciation expense $17,000 interest expense $9000 income tax expense $29,000 $579,000 Net income $56,000 Wolf Company balance sheet assets December 31, 2013 December 31, 2012 Cash $11,000 $5000 Accounts Receivable $41,000 $32,000 Inventory $90,000 $60,000 prepaid insurance $5000 $7000 plan assets $250,000 $195,000 accumulated depreciation ($68,000) ($51,000) Total assets $329,000 $248,000 Liabilities and stockholders equity Accounts Payable $7000 $10,000 wages payable $9000 $6000 income tax payable $7000 $8000 bonds payable $130,000 $75,000 common stock $90,000 $90,000 retained earnings $86,000 $59,000 Total liabilities and stockholders’ equity $329,000 $248,000 Cash dividends of $29,000 were declared and paid joint 2013. Plant assets, were purchased for cash and bonds payable were issued for cash. Bond interest is paid semiannually on June 30 and December 31. Accounts Payable relate to merchandise purchases. Required a. calculate the change in cash that occurred during 2013 b. prepare a statement of cash flows using the indirect method c. compute the cash flow d. compute the operating cash flow to current liabilities ratio e. compute the operating cash flow to capital expenditures ratio

Paper For Above instruction

This comprehensive analysis explores several fundamental aspects of corporate finance, including dividend distribution policies, share issuance accounting, stockholders’ equity transactions, cash flow analysis, and financial statement preparation. Each component illuminates critical practices and principles that influence a company's financial health and transparency. The discussion integrates theoretical concepts with practical applications, supported by credible examples and scholarly references to elucidate complexities in financial management and reporting.

Dividend Distribution: Cumulative and Non-Cumulative Preferences

Power Corporation's dividend payments over three years serve as a practical illustration of corporate dividend policies concerning preferred stock, particularly examining the implications of cumulative versus non-cumulative preferences. The preferred stock, with an 8% dividend rate on a $50 par value, entitles preferred shareholders to annual dividends amounting to $4 per share, totaling $60,000 annually for 15,000 shares.

In cumulative preferred stock scenarios, dividends accrue if unpaid in any year and must be paid out before common shareholders receive dividends. In Year 1, with no dividends declared, preferred shareholders are owed $60,000 in arrears. In Year 2, with dividends of $280,000 declared, preferred shareholders receive their $60,000 upon declaration, and the remaining $220,000 is allocated to common shareholders. In Year 3, with dividends of $60,000, preferred shareholders are entitled to the full amount, leaving no dividends for common shareholders since their cumulative preferred dividends are fully paid in earlier years.

Conversely, in non-cumulative preferred stock, unpaid dividends in any year do not accumulate. Therefore, in Year 1, preferred shareholders receive nothing as dividends are not cumulative. In Year 2, the preferred shareholders receive $60,000 (their annual entitlement), with the remaining $220,000 allocated to common shareholders. In Year 3, the preferred shareholders again receive $60,000, and the surplus is again distributed to common shareholders. This differentiation significantly influences dividend distribution planning and shareholder rights.

Accounting for Stock Issuances: Cash and Non-Cash Transactions

Chavoy Corporation’s stock issuance exemplifies various transaction types impacting corporate accounting records. On August 1, the issuance of 800 shares to settle services valued at $9,600 reflects a non-cash transaction where the service expense is offset by common stock issued. The journal entry records the service cost as an asset or expense and recognizes common stock issued at par value, with the excess recorded as additional paid-in capital.

Subsequently, on August 15, the issuance of 5,000 shares for $75,000 in cash involves cash inflow and the recognition of common stock at par value, with the remainder allocated to additional paid-in capital. The third transaction on October 15 involves issuing 3,000 shares valued at $48,000 for land, which necessitates recording the land at its fair value upon acquisition, and recognizing common stock and additional paid-in capital accordingly.

Stockholders’ Equity Transactions and Balance Sheet Presentation

Tunic Corporation’s April transactions highlight the process of accounting for stock issuance and its impact on shareholders’ equity. The initial issue of 80,000 common shares at $15 generates cash of $1,200,000 and increases common stock and additional paid-in capital based on the par value. The issuance of 2,000 shares in exchange for services valued at $31,000 involves recording the expense and recognizing common stock at par, with the excess to additional paid-in capital.

The issuance of 3,000 shares for equipment with a fair value of $48,000 is accounted for by recording the equipment asset, issuing common stock at par, and acknowledging additional paid-in capital. The issuance of 6,000 preferred shares at $55 per share generates cash proceeds of $330,000, which increase preferred stock and additional paid-in capital. The end result is a detailed shareholders' equity section reflecting share capital, paid-in capital, and retained earnings, which is essential for financial statement transparency.

Cash Flow from Operating Activities (Indirect Method)

Cairo Company’s net loss of $21,000 necessitates adjustments to reconcile net income with cash flow from operating activities. Depreciation expense of $8,600, a non-cash charge, is added back. Changes in working capital accounts—such as decreases in accounts receivable and inventory—are analyzed to determine their impact on cash flows. An increase in accounts receivable and inventory represent use of cash, whereas a decrease in accounts payable and accrued liabilities indicate cash outflows.

Calculating the net cash flow from operating activities through the indirect method reveals whether Cairo’s operations generated or used cash during the period. The adjustments indicate that the company used cash, primarily driven by working capital changes outweighing non-cash expenses, thus highlighting operational cash consumption.

Statement of Cash Flows (Indirect Method) for Wolf Company

Wolf Company’s financial data enables the preparation of its statement of cash flows using the indirect method. Starting with net income of $56,000, adjustments are made for depreciation, changes in working capital, and other non-cash expenses. The increase in accounts receivable, inventory, and prepaid insurance reflect cash outflows, whereas decreases in accounts payable, wages payable, and income tax payable indicate cash inflows.

Furthermore, investing activities such as the purchase of plant assets are recorded, along with financing activities such as issuing bonds payable and paying dividends. The resulting cash flow statement provides a comprehensive view of operational, investing, and financing cash flows, illustrating the company's liquidity management and capital structure adjustments over the period.

Analysis and Ratios

Calculating the change in cash involves summing the net cash flows from operating, investing, and financing activities. The operating cash flow ratio to current liabilities and the operating cash flow to capital expenditures ratios serve as indicators of liquidity and investment capacity. These measures offer insights into Wolf Company’s ability to fund operations and growth initiatives solely from operational cash flows, emphasizing the importance of effective cash management in sustaining financial health.

Concluding Remarks

The analysis underscores the interconnectedness of dividend policies, share issuance strategies, equity transactions, and cash flow management in shaping corporate financial dynamics. Proper understanding and application of accounting standards facilitate transparent financial reporting, which is crucial for stakeholders' decision-making. These examples exemplify the practical implications of financial principles, emphasizing the importance of meticulous record-keeping and strategic planning in corporate finance.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2019). Corporate Finance. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
• Fridson, M. S., & Alvarez, F. (2019). Financial Statement Analysis: A Practitioner's Guide. Wiley.
• Gibson, C. H. (2013). Financial Reporting & Analysis. Cengage Learning.
• Ferguson, C. (2014). Financial Markets and Corporate Strategy. Pearson.
• Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
• Block, S. B., & Hirt, G. A. (2018). Foundations of Financial Management. McGraw-Hill Education.
• Corporate Finance Institute. (2022). Financial Ratios and Analysis. Retrieved from https://corporatefinanceinstitute.com