Market Corporation Began Its Business On Jan 1, 2012

Market Corporation Began Its Business On Jan 1 2012 It Sold 31

1. Market Corporation began its business on Jan 1, 2012. It sold 6,100 shares of no-par common stock with a stated value of $24 per share at a price of $31 per share. The company's charter authorized 38,000 shares. Retained Earnings were $59,000 on Dec 31. Prepare the stockholders’ equity section for Market on Dec 31, 2012.

2. April Corporation in its first 3 years of operation paid out the following dividends: Year 1: $0, Year 2: $27,000, Year 3: $94,000. The company has 2,800 shares of $100 par, 8% cumulative, nonparticipating preferred stock, and 14,500 shares of $25 par common stock. Calculate the total dividends paid each year to holders of common and preferred stock.

Paper For Above instruction

Introduction

Understanding the composition and changes in stockholders' equity and dividend distributions is fundamental to analyzing a company's financial health and investor returns. This paper examines the stockholders' equity section of Market Corporation at year-end 2012 and the dividend allocations for April Corporation over its first three years of operation. Accurate reporting and analysis of these components offer valuable insights into corporate finance strategies, shareholder value management, and the implications of dividend policies.

Part 1: Stockholders’ Equity of Market Corporation as of December 31, 2012

Market Corporation commenced operations on January 1, 2012, issuing 6,100 shares of no-par common stock with a stated value of $24 per share, sold at $31 per share. The total proceeds from this issuance can be calculated as follows:

• Number of shares issued: 6,100
• Stock price per share: $31
• Total proceeds: 6,100 shares x $31 = $189,100

Since the stock has no-par value but a stated value of $24, the accounting entries typically allocate the proceeds between the common stock account and additional paid-in capital. The common stock account is credited for the total stated value of issued shares:

• Common Stock (Stated Value): 6,100 shares x $24 = $146,400

The difference between total proceeds and the stated value is credited to Additional Paid-in Capital:

• Additional Paid-in Capital: $189,100 - $146,400 = $42,700

Retained Earnings are given as $59,000 at the end of the year. The company's stockholders’ equity section as of December 31, 2012, will include:

• Common Stock: $146,400
• Additional Paid-in Capital: $42,700
• Retained Earnings: $59,000

Adding these components, the total stockholders’ equity is:

Total Stockholders' Equity = $146,400 + $42,700 + $59,000 = $248,100

Thus, the stockholders’ equity section would be presented as follows:

Stockholders' Equity:
Common Stock, no-par, stated value $24, 6,100 shares issued and outstanding  $146,400
Additional Paid-in Capital                                                  $42,700
Retained Earnings                                                          $59,000
Total Stockholders' Equity                                                 $248,100

Part 2: Dividend Payments for April Corporation

April Corporation's dividend distributions over three years involve both preferred and common shareholders. The preferred stock is 2,800 shares of $100 par value, with an 8% cumulative dividend rate. The common stock comprises 14,500 shares of $25 par value.

Year 1:

As Year 1 dividends are $0, no dividends are paid to either preferred or common shareholders. Since preferred stock is cumulative, any unpaid dividends accumulate, but no dividends are due if the company declares none.

Year 2:

Dividends declared: $27,000

• Preferred stock annual dividend: 2,800 shares x $100 x 8% = $22,400
• Preferred dividends for Year 2 are fully covered because total dividends paid ($27,000) exceed preferred dues ($22,400).
• Remaining dividends allocated to common shareholders: $27,000 - $22,400 = $4,600

Year 3:

Dividends declared: $94,000

• Accumulated preferred dividends from Year 1 (unpaid, as no dividends declared): $22,400
• Preferred dividends for Year 3: $22,400 (annual) plus any accumulated unpaid dividends from previous years have to be paid first because the preferred stock is cumulative. Since Year 2's preferred dividend was fully paid, Year 3's preferred dividend is again $22,400.
• Total preferred dividends to be paid in Year 3: 2,800 shares x $100 x 8% = $22,400
• Remaining dividends for Year 3: $94,000 - $22,400 = $71,600
• As preferred dividends are fully paid, all residual dividends go to common shareholders.

Summary of Dividend Distributions:

Conclusion

Analyzing the stockholders' equity of Market Corporation reveals how early issuance impacts the company's financial statement composition. The detailed dividend calculations for April Corporation demonstrate the prioritization and accumulation principles typical for preferred stock, especially with cumulative rights. Understanding these components provides deeper insights into corporate financial strategies, shareholder returns, and the overall health of a business.

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