Question

Identifying and Analyzing Financial Statement Effects of Dividends

The stockholders' equity of Hammel Company at December 31, 2016, is shown below.
5% preferred stock, $100 par value, 10,000 shares authorized; 6,000 shares issued and outstanding $600,000
Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding 350,000
Paid-in capital in excess of par value—preferred stock 50,000
Paid-in capital in excess of par value—common stock 400,000
Retained earnings 747,000
Total stockholders' equity $2,147,000
The following transactions, among others, occurred during 2012:
Apr. 1 Declared and issued a 100% stock dividend on all outstanding shares of common stock. The market value of the stock was $11 per share.
Dec. 7 Declared and issued a 4% stock dividend on all outstanding shares of common stock. The market value of the stock was $14 per share.
Dec. 20 Declared and paid (1) the annual cash dividend on the preferred stock and (2) a cash dividend of 80 cents per common share.
Compute retained earnings for 2017 assuming that the company reports 2012 net income of $523,000.$________

Answer 1

The Retained Earnings for 2017 will be $1,239,200.

Step-by-step explanation:

The Retained Earnings shows Income attributable to Stockholders.

It is computed by adjusting the Opening Retained Earnings balance with the Income and Dividends Declared during the year as follows :

Opening Retained Earnings Balance $747,000

Add Net Income During the year $523,000

Less Dividends Declared :

Preferred Stock

Preferred Stock ( 4% × $100 × 6,000) ($24,000)

Preferred Stock ( 4% × $50,000) ($2,000)

Common Stock

Common Stock ( 80% × 6,000) ($4,800)

Opening Retained Earnings Balance $1,239,200

Conclusion :

The Retained Earnings for 2017 will be $1,239,200.