Chapter 1 Assignment
Question 1: (see pages 15 in the text)
a.
List the 5 characteristics of a sole proprietorship.
b.
List the 4 characteristics of a partnership.
c.
List the 5 characteristics of a corporation.
Question 2:
Problem 2 (page 23)
Question 3:
1. Johnson Inc began operations in 20X1. In that year, the company earned net income of $145,000 and paid dividends of $1.25 per share on each of its 30,000 outstanding common shares. Calculate retained earnings at the end of 20X1.
2. Continue with Johnson Inc. from #1. In the following year, Johnson incurred a loss of $127,000 and paid no dividends. Calculate retained earnings or deficit at the end of 20X2.
3. Blaine Corporation had $200,000 in retained earnings at the end of 20X2. It started the year with $100,000 of retained earnings. During 20X2, the company paid dividends of $20,000. Calculate the net income for the year.
4. Princess Company has the following shareholders' equity on its balance sheet:
Shareholders' Equity
Preferred shares, $9 cumulative, 4,000 issued and outstanding $400,000
Common shares, 50,000 issued and outstanding 2,600,000
Retained earnings 460,000
Total shareholders' equity $3,460,000
a. Calculate the total annual preferred dividend entitlement.
b. Calculate the total amount of contributed capital.
c. If the company paid total dividends of $120,000 in the year, and there were no preferred dividends owing from past years, how much did the common shareholders receive per share?
d. Calculate the market price of the common shares.
e. Which shareholders have the right to vote for the Board of Directors?
5. Suppose that Company X reported earnings of $100,000 and paid dividends of $40,000 in 20X1. What happened to the remainder?
Question 4:
Complete the True or False questions on the next page
True or False? Corporations
1_____ Shareholders’ equity for a corporation consists of contributed capital and retained earnings.
2_____ The owner of a corporation is called a director.
3_____ The payment of business profits to the owners of a corporate business is known as drawings.
4_____ A dividend is a distribution of retained earnings.
5_____ The shareholders provide all of the financing for a corporation
6_____ One of the advantages of investing in preferred shares is that you will always be paid your dividend.
7_____ The members of the Board of Directors are elected by the owners of the corporation: that is, by the common and preferred shareholders.
8_____ Both interest to the creditors and dividends to the preferred shareholders must be paid each year.
9_____ A corporation is discontinued if the only shareholder dies.
10_____ The market price of common shares is shown on the balance sheet.
11_____ If a corporation goes bankrupt, the common shareholders are required to pay the creditors from their own resources.
12_____ In a year of huge profits, the preferred shareholders can expect higher than normal dividends.
13_____ The balance in retained earnings represents the cumulative earnings of a company since its inception, less the total dividends paid out.
14_____ The main goal of a responsible financial manager is high profits.