Mauj Outfitters Corporation manufactures and distributes leisure clothing. Selected transactions completed by Mauj Outfitters dui8rng the current fiscal year are as follows:
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Feb. 19. |
Split the common stock 4 for 1 and reduced the par from $80 to $20 per share. After the split, there were 600,000 common shares outstanding. |
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Mar. 1. |
Declared semiannual dividends of $1.20 on 75,000 shares of preferred stock and $0.08 on the 600,000 shares of $20 per common stock to stockholders of record on March 31, payable on April 30. |
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Apr. 30. |
Paid the cash dividends. |
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June 27. |
Purchased 90,000 shares of the corporation’s own common stock at $24, recording the stock at cost. |
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Aug. 17. |
Sold 40,000 shares of treasury stock at $30, receiving cash. |
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Sept. 1. |
Declared semiannual dividends of $1.20 on the preferred stock and $0.12 on the common stock (before the stock dividends). In addition, a 1% common stock dividend was declared on the common stock outstanding, to be capitalized at the fair market value of the common stock, which is estimated at $28. |
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Oct. 31. |
Paid the cash dividends and issued the certificate for the common stock dividend. |
Instructions
Journalize the transactions
On December 31, 2012, $900,000 of the $3,600,000 loan had been disbursed in modernization of the retail stores and in expansion of the product line. Cikan Designs Inc.’s balance sheet as of December 31, 2012, if shown below.
Cikan Designs Inc.
Balance sheet
December 31, 2012
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assets |
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Current assets: |
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Cash |
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$250,000 |
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Marketable securities |
2,700,000 |
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Accounts receivable |
$700,000 |
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Less allowance for doubtful accounts |
50,000 |
650,000 |
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Merchandise inventory |
2,680,000 |
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Prepaid expenses |
20,000 |
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Total current assets |
$6,300,000 |
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Property, plant, and equipment: |
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Land |
$500,000 |
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Buildings |
$4,750,000 |
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Less accumulated depreciation |
1,140,000 |
3,610,000 |
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Equipment |
$2,320,000 |
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Less accumulated depreciation |
730,000 |
1,590,000 |
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Total property, plant, and equipment |
5,700,000 |
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Total assets |
$12,000,000 |
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Liabilities |
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Current liabilities: |
$1,430,000 |
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Notes payable (Metro National Bank) |
360,000 |
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Salaries payable |
10,000 |
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Total current liabilities |
$1,800,000 |
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Long-term liabilities: |
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Notes payable (Metro National Bank) |
3,240,000 |
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Total liabilities |
$5,040,000 |
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Stockholder’s Equity |
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Paid in capital: |
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Common stock, $25 per (200,000 shares authorized, 180,000 shares issued) |
$4,500,000 |
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Excess of issue price over par |
270,000 |
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Total paid-in capital |
$4,770,000 |
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Retained earnings |
2,190,000 |
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Total stockholder’s equity |
6,960,000 |
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Total liabilities and stockholder’s equity |
$12,000,000 |
The bond of directors is schedule to meet January 8, 2013, to discuss the result of operations for 2012 and to consider the declaration of dividends for the fourth quarter of 2012. The chairman of the board has asked for your advice on the declaration of dividends.
1. What factors should the board consider in deciding whether to declare a cash dividend?
The bond is considering the declaration of a stock dividend instead of a cash dividend. Discuss the issuance of a stock dividend from the point of view of
(a) a stockholder and (b) the board of directors.
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