Question

Permabilt Corp. was incorporated on January 1, 2019, and issued the following stock for cash: 2,000,000 shares of no-par common stock were authorized; 750,000 shares were issued on January 1, 2019, at $35 per share. 800,000 shares of $100 par value, 7.5% cumulative, preferred stock were authorized; 540,000 shares were issued on January 1, 2019, at $105 per share. No dividends were declared or paid during 2019 or 2020. However, on December 22, 2021, the board of directors of Permabilt Corp. declared dividends of $15,000,000, payable on February 12, 2022, to holders of record as of January 8, 2022.

Required:
a. Use the horizontal model for the issuance of common stock and preferred stock on January 1, 2019. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect.)
b. Use the horizontal model for the declaration of dividends on December 22, 2021. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect.)
c. Use the horizontal model for the payment of dividends on February 12, 2022. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect.)

Answer 1

Permabilt Corp.

Financial Statement Effects:

Balance Sheet Statement of

Assets = Liabilities + Equity Cash Flows

a. January 1, 2019:

Cash $26,250,000

Common stock $26,250,000 FA cash inflow

b. December 22, 2021:

Dividends -$15,000,000

Dividends Payable $15,000,000

c. February 12, 2022:

Dividends Payable -$15,000,000

Cash -$15,000,000 FA cash outflow

Total $11,250,000 = 0 + $11,250,000

Step-by-step explanation:

a) Data and Analysis:

January 1, 2019

Cash $26,250,000 Common stock $26,250,000

Cash $56,700,000 7.5% Cumulative Preferred Stock $54,000,000 Additional Paid-in Capital - Preferred $2,700,000

December 22, 2021:

Preferred Stock Dividends $4,050,000 ($54,000,000 * 7.5%)

Common Stock Dividends $10,950,000 ($15,000,000 - $4,050,000)

Dividends Payable $15,000,000

February 12, 2022:

Dividends Payable $15,000,000

Cash $15,000,000