Page 516 - Accounting Principles (A Business Perspective)

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b. Prepare the stockholders' equity section of the 2009 April 30, balance sheet. Assume retained earnings were
USD 80,000.
c. Assume that each share of the USD 32 convertible preferred stock is convertible into six shares of common

stock and that one-half of the preferred is converted on 2009 September 1. Give the required journal entry.
Alternate problem E Kane Company issued all of its 5,000 shares of authorized preferred stock on 2008
January 1, at USD 100 per share. The preferred stock is no-par stock, has a stated value of USD 5 per share, is
entitled to a cumulative basic preference dividend of USD 6 per share, is callable at USD 110 beginning in 2009,
and is entitled to USD 100 per share in liquidation plus cumulative dividends. On this same date, Kane also issued
10,000 authorized shares of no-par common stock with a USD 10 stated value at USD 50 per share.
On 2009 December 31, the end of its second year of operations, the company's retained earnings amounted to

USD 160,000. No dividends have been declared or paid on either class of stock since the date of issue.
a. Prepare the stockholders' equity section of Kane Company's 2009 December 31, balance sheet.
b. Compute the book value in total and per share of each class of stock as of 2009 December 31.
c. If USD 110,000 of dividends are to be declared as of 2009 December 31, compute the amount payable to each
class of stock.
The stockholders' equity sections from three different corporations' balance sheets follow.
1) Stockholders' equity:
Paid-in capital:
Preferred stock—7% cumulative, $240 par value,500
shares authorized, issued, and outstanding $ 120,000
Common stock—$48 par value, 10,000 shares
authorized, issued and outstanding 480,000
Total paid-in capital $ 600,000
Retained earnings 422,400
Total stockholders' equity $1,022,400
(All dividends have been paid.)
2) Stockholders' equity:
Paid-in capital:
Preferred stock—6% cumulative, $80 par
value,10,000 shares authorized, issued, and
outstanding $ 800,000
Common stock—$240 par value, 30,000shares
authorized, issued and outstanding 7,200,000
Total paid-in capital $8,000,000
Retained earnings 88,000
Total stockholders' equity $8,088,000
(The current year's dividends have not been paid.)
3) Stockholders' equity:
Paid-in capital:

Preferred stock—7% cumulative, $480 par
value,10,000 shares authorized, issued, and
outstanding $ 4,800,000
Common stock—$240 par value, 50,000shares
authorized, issued and outstanding 12,000,000
Total paid-in capital $16,800,00
0
Retained earnings deficit (1,872,000)
Total stockholders' equity $14,928,00
0
(Dividends have not been paid for 2 previous years or the current
year.)
Compute the book values per share of the preferred and common stock of each corporation assuming that in a
liquidation the preferred stock receives par value plus dividends in arrears.

Accounting Principles: A Business Perspective 517 A Global Text