Dividend Policy Paper 6

1

On June 27, year 1, Brite Co. distributed to its common stockholders 100,000 outstanding common shares of its investment in Quik, Inc., an unrelated party. The carrying amount on Brite’s books of Quik’s $1 par common stock was $2 per share. Immediately after the distribution, the market price of Quik’s stock was $2.50 per share. In its income statement for the year ended June 30, year 1, what amount should Brite report as gain before income taxes on disposal of the stock?






2

On December 1, year 1, Nilo Corp. declared a property dividend of marketable securities to be distributed on December 31, year 1, to stockholders of record on December 15, year 1. On December 1, year 1, the trading securities had a carrying amount of $60,000 and a fair value of $78,000. What is the effect of this property dividend on Nilo’s year 1 retained earnings, after all nominal accounts are closed?






3

Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s
Paid-in capital
Retained earnings






4

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandise’s carrying amount over its market value should be






5

Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was distributed sixty days after the declaration date. By what amount did Ray’s current liabilities increase as a result of the stock dividend declaration?






6

How would total stockholders’ equity be affected by the declaration of each of the following?
Stock dividend
Stock split






7

On July 1, year 1, Bart Corporation has 200,000 shares of $10 par common stock outstanding and the market price of the stock is $12 per share. On the same date, Bart declared a 1-for-2 reverse stock split. The par of the stock was increased from $10 to $20 and one new $20 par share was issued for each two $10 par shares outstanding. Immediately before the 1-for-2 reverse stock split, Bart’s additional paid-in capital was $450,000. What should be the balance in Bart’s additional paid-in capital account immediately after the reverse stock split is effected?






8

How would a stock split in which the par value per share decreases in proportion to the number of additional shares issued affect each of the following?
Additional paid-in capital
Retained earnings






9

How would a stock split in which the par value per share decreases in proportion to the number of additional shares issued affect each of the following?
Additional paid-in capital
Retained earnings






10

Wood Co. owns 2,000 shares of Arlo, Inc.’s 20,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock and 1,000 shares (2%) of Arlo’s common stock. During year 2, Arlo declared and paid dividends of $240,000 on preferred stock. No dividends had been declared or paid during year 1. In addition, Wood received a 5% common stock dividend from Arlo when the quoted market price of Arlo’s common stock was $10 per share. What amount should Wood report as dividend income in its year 2 income statement?






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