Affiliate Marketing Secrets

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Bridger Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Montana, Idaho, Oregon, and Washington. Bridger Bike Corp. has declared the following annual dividends over a six-year period ending December 31 of each year: 2005, $5,000; 2006, $18,000; 2007, $45,000; 2008, $45,000; 2009, $60,000; and 2010, $67,000. During the entire period, the outstanding stock of the company was composed of 10,000 shares of 2% cumulative preferred stock, $100 par, and 25,000 shares of common stock, $1 par.
For parts 1 and 2, round all answers to nearest whole cent. Enter a zero if no dividends will be paid.
1. Use the attached spreadsheet to reach the solutions for this problem.
Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2005. Summarize the data in tabular form, using the following column headings:
Year Total
Dividends Preferred Dividends Common Dividends
Total Per Share Total Per Share
2005 $ 5,000 $ $ $ $
2006 18,000
2007 45,000
2008 45,000
2009 60,000
2010 67,000
$ $
2. Determine the average annual dividend per share for each class of stock for the six year period.
Average annual dividend for preferred: $ per share
Average annual dividend for common: $ per share
3. Assuming a market price of $125 for the preferred stock and $8 for the common stock, calculate the average annual percentage return on initial stockholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
Round to one decimal place.
Preferred stock: %
Common stock: %

A corporation uses the equity method to account for its 40% ownership of another company. The investee earned $20,000 and paid $5,000 in dividends. The investor made the following entries:
D Investment in affiliate 8K
C Equity in earning of affiliate 8K
D Cash 2K
C Dividend revenue 2K
What effect will these entries have on the investor’s statement of financial position?
A. Investment in affiliate overstated, retained earnings understated
B Financial position will be fairly stated.
C Investment in affiliate overstated, retained earning overstated.
D Investment in affiliate understated, retained earning understated.

A corporation uses the equity method to account for its 40% ownership of another company. The investee earned $20,000 and paid $5,000 in dividends. The investor made the following entries:
D Investment in affiliate 8K
C Equity in earning of affiliate 8K
D Cash 2K
C Dividend revenue 2K
What effect will these entries have on the investor’s statement of financial position?
A. Investment in affiliate overstated, retained earnings understated
B Financial position will be fairly stated.
C Investment in affiliate overstated, retained earning overstated.
D Investment in affiliate understated, retained earning understated.

Which of the following information would be on a balance sheet?
6.025% Long-Term Note Payable (only long term portion) 230,000
Accounts Payable 220,000
Accounts Receivable 110,000
Accumulated Depreciation – Building & Equip 109,600
Allowance of Doubtful Accounts 5,800
Building and Equipment 400,000
Capital Stock 2$ par, Authorized 100,00 Shares 60,000
Cash on Hand 44,725
Cash Surrendered Value of Life Insurance Policies 10,800
Current Installment of Long-term Debt (6.025% note) 20,000
Depreciation Expense 19,900
Discontinued Operational Loss 42,000
Dividends Received as Revenue 4,500
Error in Inventory Pricing in 2005 12,500
Goodwill 55,000
Inventories, at FIFO Cost (with market value of 360,000) 332,600
Long-Term Advance to Affiliated Company (Note Receivable) 50,000
Paid-in Capital in Excess Par 155,200
Prepaid 6 Months of Rent 3,600
Real Estate Tax Payable due 3/31/2010 6,625
Retain Earnings – Ending 12/31/09 262,800
Sales 450,000
Sales Return and Allowances 3,100
Savings Account Balance as of 12/31/09 26,000
Trading Marketable Securities (Listed at Cost, with a Market value of 51,800) 58,500
Uncollectible Account Expense 12,000
Unearned Revenue – Current Portion 14,500
~Notes are not required as of 12/31/09