Listed below are the transactions that affected the shareholders' equity of Branch-Rickie Corporation during the period 2011–2013

P 18-5 Shareholders' equity transactions; statement of shareholders' equity

Listed below are the transactions that affected the shareholders' equity of Branch-Rickie Corporation during the period 2011–2013. At December 31, 2010, the corporation's accounts included:

($ in 000s)
Common stock, 105 million shares at $1 par $105,000
Paid-in capital-excess of par 630,000
Retained earnings 970,000

a. November 1, 2011, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
b. On March 1, 2012, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.6 million, but were purchased two years previously for $1.3 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
c. On July 12, 2012, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $21 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.
d. On November 1, 2012, the board of directors declared a cash dividend of $.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
e. On January 15, 2013, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $22 per share.
f. On November 1, 2013, the board of directors declared a cash dividend of $.65 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.

Required:
1. Prepare the journal entries that Branch-Rickie recorded during the three-year period for these transactions.
2. Prepare comparative statements of shareholders' equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $330 million, $395 million, and $455 million for 2011, 2012, and 2013, respectively.

Click here for the solution: Listed below are the transactions that affected the shareholders' equity of Branch-Rickie Corporation during the period 2011–2013

The shareholders' equity of WBL Industries includes the items shown below

E 18-10 Effect of cumulative, nonparticipating preferred stock on dividends—3 years

The shareholders' equity of WBL Industries includes the items shown below. The board of directors of WBL declared cash dividends of $8 million, $20 million, and $150 million in its first three years of operation—2011, 2012, and 2013, respectively.

Common stock 100
Paid in capital excess of par, common 980
Preferred stock, 8% 200
Paid in capital excess of par, preferred 555

Required:
Determine the amount of dividends to be paid to preferred and common shareholders in each of the three years, assuming that the preferred stock is cumulative and nonparticipating.


Click here for the solution: The shareholders' equity of WBL Industries includes the items shown below

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity

E 18-5 Issuance of shares; noncash consideration

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.

Required:
Prepare the appropriate journal entries to record each transaction.
Feb. 12 Sold 2 million common shares, for $9 per share.
13 Issued 40,000 common shares to attorneys in exchange for legal services.
13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000.
Nov. 15 Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000


Click here for the solution: During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity

The balance sheet of Consolidated Paper, Inc., included the following shareholders' equity accounts at December 31, 2010

E 18-23 Transactions affecting retained earnings

The balance sheet of Consolidated Paper, Inc., included the following shareholders' equity accounts at December 31, 2010:

During 2011, several events and transactions affected the retained earnings of Consolidated Paper.

Required:
1. Prepare the appropriate entries for these events:
a. On March 3 the board of directors declared a property dividend of 240,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $700,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15.
b. On May 3 a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $11 per share.
c. On July 5 a 2% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.
d. On December 1 the board of directors declared the 8.8% cash dividend on the 90,000 preferred shares, payable on December 28 to shareholders of record December 20.
e. On December 1 the board of directors declared a cash dividend of $.50 per share on its common shares, payable on December 28 to shareholders of record December 20.
2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., for the year ended at December 31, 2011. Net income for the year was $810,000.


Click here for the solution: The balance sheet of Consolidated Paper, Inc., included the following shareholders' equity accounts at December 31, 2010

Mike and Nancy are equal shareholders in MN Corporation, an S corporation

C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments

Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year:

Sales $300,000
Cost of goods sold 140,000
Dividends on corporate investments 10,000
Tax-exempt interest income 3,000
Section 1245 gain (recapture) on equipment sale 22,000
Section 1231 gain on equipment sale 12,000
Long-term capital gain on stock sale 8,000
Long-term capital loss on stock sale 7,000
Short-term capital loss on stock sale 6,000
Depreciation 18,000
Salary to Nancy 20,000
Meals and entertainment expenses 7,800
Interest expense on loans allocable to:
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principal payment on business loan 9,000
Charitable contributions 2,000
Distributions to shareholders ($15,000 each) 30,000

a. Compute the S corporation’s ordinary income and separately stated items.
b. Show Mike’s and Nancy’s shares of the items in Part a.
c. Compute Mike’s and Nancy’s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.


Click here for the solution: Mike and Nancy are equal shareholders in MN Corporation, an S corporation

Bailey is one of four equal unrelated shareholders of Checker Corporation

C:4-52 Comparison of Dividends and Redemptions. Bailey is one of four equal unrelated shareholders of Checker Corporation. Bailey has held Checker stock for four years and has a basis in her stock of $40,000. Checker has $280,000 of current and accumulated E&P and distributes $100,000 to Bailey.
a. What are the tax consequences to Checker and to Bailey if Bailey is an individual and the distribution is treated as a dividend?
b. In Part a, what would be the tax consequences if Bailey were a corporation?
c. What are the tax consequences to Checker and to Bailey (an individual) if Bailey surrenders all her stock in a redemption qualifying for sale treatment?
d. In Part c, what would be the tax consequences if Bailey were a corporation?
e. Which treatment would Bailey prefer if Bailey were an individual? Which treatment would Bailey Corporation prefer?

Click here for the solution: Bailey is one of four equal unrelated shareholders of Checker Corporation

What is the risk to shareholders of blindly granting these proxies?

The management of corporations frequently solicit proxies for a management-supported board of directors. What is the risk to shareholders of blindly granting these proxies?

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