Maria Martinez organized Manhattan Transport Company in January 2008. The corporation immediately issued at $8 per share one-half of its 200,000 authorized shares of $2 par value common stock. On January 2, 2009, the corporation sold at par value the entire 5,000 authorized shares of 8 percent, $100 par value cumulative preferred stock. On January 2, 2010, the company again needed money and issued 5,000 shares if an authorized 10,000 shares of no-par cumulative preferred stock for a total of $512,000. The no-par shares have a stated dividend of $9 per share.The company declared no dividends in 2008 and 2009. At the end of 2009, its retained earnings were $17,000. During 2010 and 2011 combined, the company earned a total of $890,000. Dividends of 50 cents per share in 2010 abd $1.60 per share in 2011 were paid on the common stock.

Instructions

a. Prepare the stockholders' equity section of the balance sheet at December 31, 2011. Include a supporting schedule showing your computation of retained earnings, at the balance sheet date. (Hint: Income increases retrained earnings, whereas dividends decrease retained earnings.)

b. Assume that on January 2, 2009, the corporation could have borrowed $500,000 at 8 percent interest on a long-term basis instead of issueing the 5,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may chose to issue cumulative preferred stock rather than finance operations with a long term debt.

25 Minutes, Medium					PROBLEM 11.3A
MANHATTAN TRANSPORT COMPANY
a.
MANHATTAN TRANSPORT COMPANY
Partial Balance Sheet
December 31, 2011
Stockholders' equity
	8% cumulative preferred stock, $100 par, 5,000
		shares authorized, issued, and outstanding
	$9 cumulative preferred stock, no-par value, 10,000 shares
		authorized, 5,000 shares issued and outstanding
	Common stock, $2 par, 200,000 shares authorized, 100,000
		shares issued and outstanding
	Additional paid-in capital: Common stock
		Total paid-in capital
	Retained earnings*
		Total stockholders' equity
*Computation of retained earnings at December 31, 2011:
	Retained earnings at Dec. 31, 2009
	Add: Net income for 2010 and 2011
		Net income for four-year period
	Less: Dividends paid on 8% preferred stock:
		Dividends on $9 preferred stock:
		Dividends on common stock:
	Retained earnings, December 31, 2011

Maria Martinez organized Manhattan Transport Company in January 2008. The corporation immediately issued at $8 per share one-half of its 200,000 authorized shares of $2 par value common stock. On January 2, 2009, the corporation sold at par value the entire 5,000 authorized shares of 8 percent, $100 par value cumulative preferred stock. On January 2, 2010, the company again needed money and issued 5,000 shares if an authorized 10,000 shares of no-par cumulative preferred stock for a total of $512,000. The no-par shares have a stated dividend of $9 per share.The company declared no dividends in 2008 and 2009. At the end of 2009, its retained earnings were $17,000. During 2010 and 2011 combined, the company earned a total of $890,000. Dividends of 50 cents per share in 2010 abd $1.60 per share in 2011 were paid on the common stock.

Instructions

a. Prepare the stockholders' equity section of the balance sheet at December 31, 2011. Include a supporting schedule showing your computation of retained earnings, at the balance sheet date. (Hint: Income increases retrained earnings, whereas dividends decrease retained earnings.)

b. Assume that on January 2, 2009, the corporation could have borrowed $500,000 at 8 percent interest on a long-term basis instead of issueing the 5,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may chose to issue cumulative preferred stock rather than finance operations with a long term debt.

25 Minutes, Medium					PROBLEM 11.3A
MANHATTAN TRANSPORT COMPANY Maria Martinez organized Manhattan Transport Company in January 2008. The corporation immediately issued at $8 per share one-half of its 200,000 authorized shares of $2 par value common stock. On January 2, 2009, the corporation sold at par value the entire 5,000 authorized shares of 8 percent, $100 par value cumulative preferred stock. On January 2, 2010, the company again needed money and issued 5,000 shares if an authorized 10,000 shares of no-par cumulative preferred stock for a total of $512,000. The no-par shares have a stated dividend of $9 per share.The company declared no dividends in 2008 and 2009. At the end of 2009, its retained earnings were $17,000. During 2010 and 2011 combined, the company earned a total of $890,000. Dividends of 50 cents per share in 2010 abd $1.60 per share in 2011 were paid on the common stock. Instructions a. Prepare the stockholders' equity section of the balance sheet at December 31, 2011. Include a supporting schedule showing your computation of retained earnings, at the balance sheet date. (Hint: Income increases retrained earnings, whereas dividends decrease retained earnings.) b. Assume that on January 2, 2009, the corporation could have borrowed $500,000 at 8 percent interest on a long-term basis instead of issueing the 5,000 shares of the $100 par value cumulative preferred stock. Identify two reasons a corporation may chose to issue cumulative preferred stock rather than finance operations with a long term debt. 25 Minutes, Medium PROBLEM 11.3A MANHATTAN TRANSPORT COMPANY a. MANHATTAN TRANSPORT COMPANY Partial Balance Sheet December 31, 2011 Stockholders' equity 8% cumulative preferred stock, $100 par, 5,000 shares authorized, issued, and outstanding $9 cumulative preferred stock, no-par value, 10,000 shares authorized, 5,000 shares issued and outstanding Common stock, $2 par, 200,000 shares authorized, 100,000 shares issued and outstanding Additional paid-in capital: Common stock Total paid-in capital Retained earnings* Total stockholders' equity *Computation of retained earnings at December 31, 2011: Retained earnings at Dec. 31, 2009 Add: Net income for 2010 and 2011 Net income for four-year period Less: Dividends paid on 8% preferred stock: Dividends on $9 preferred stock: Dividends on common stock: Retained earnings, December 31, 2011