Spark Inc is a relatively new company and you have beenrecruited to assist the management with advice and getting to thecorrect financial figures.
1. Distinguish between a stock split and a stock dividend. Isthere any reason for the difference in accounting treatment ofthese two events?
2. Assume that when you were in high school you saved $1,000 toinvest for your college education. You purchased 200 shares ofSmiley Incorporated, a small but growing company. Over the threeyears that you have owned the stock, the corporation's board ofdirectors has taken the following actions:
Declared a 2-for-1 stock split.
Declared a 20 percent stock dividend.
Declared a 3-for-1 stock split.
The current price of the stock is $12 per share.
2.1. Calculate the current number of shares and the market valueof your investment.
2.2. Explain the likely reason the board of directors of thecompany has not declared a cash dividend.
QUESTION 3 (Points 15)
3. Spark INC., had retained earnings at the beginning of thecurrent year of $460,000. During the year the company earned netincome of $250,000 and declared dividends as follows:
$1 per share for the current-year dividend on the 10,000 sharesof preferred stock outstanding.
$1 per share for the dividend in arrears for one year on the 10,000shares of preferred stock outstanding.
$0.50 per share for the current-year dividend on the 200,000 sharesof common stock outstanding.
In addition, the company discovered an overstatement in the prioryear's net income of $65,000 and corrected that error in thecurrent year. Prepare a statement of retained earnings for the yearended 2019 and also Write a short report on your findings.
QUESTION 4 (Points 10)
4. At the beginning of the current year, Spark INC. haddividends payable of $1,600,000. During the current year, thecompany declared cash dividends of $4,500,000, of which $970,000appeared as a liability at year-end.
4.1. Determine the amount of cash dividends paid during thisyear. QUESTION 5 (Points 30)
5. The accounting staff of Sparks INC has assembled thefollowing information for the year ended December 31, 2019:
5.1. Prepare a statement of cash flows in the format Examplebelow (Allison corporation) Place brackets around amountsrepresenting cash outflows. Use the direct method of reporting cashflows from operating activities.
5.2. Some of the items above will be listed in your statementwithout change. However, you will have to combine certain giveninformation to compute the amounts of
5.2.1. collections from customers,
5.2.2. cash paid to suppliers and employees, and
5.2.3. proceeds from sales of plant assets.
(Hint: Not every item listed is used in preparing a statement ofcash flows.) Example of a statement of cash flow format:
QUESTION 6 (Points 30)
6. Comparative balance sheets report average total assets forthe year of $2,575,000 and average total equity of $1,917,000(dollar amounts in thousands, except earnings per share).
Sparks INC
STATEMENT OF EARNINGS
FOR THE YEAR ENDING DECEMBER 31, 2019 |
Net Sales ...... $4,395,253 Costs and expenses: ...... Costs of goods sold ...... (2,821,455) Operating expenses ...... (1,004,396) Interest revenue ...... 15,797 Earnings before income tax ...... $585,199 Income tax expense ...... (204,820) Net earnings ...... $380,379 Earnings per share ...... $1.70 |
6.1. Prepare an income statement for the year in a multiple-stepformat.
Compute the following:
6.2. Gross profit rate,
6.3. Net income as a percentage of net sales,
6.4. Return on assets, and
6.5. Return on equity for the year.
(Round computations to the nearest one-tenth of 1 percent.)
6.6. Explain why interest revenue is not included in thecompany's gross profit computation. .....END....
