Question

Analysis Case 18−2 (Static) Statement of shareholders' equity [LO18-1, 18-3, 18-6, 18-7] The shareholders' equity portion of the balance sheet of Sessel's Department Stores, Inc., a large regional specialty retailer, is as follows: Disclosures elsewhere in Sessel's annual report revealed the following changes in shareholders' equity accounts for 2022, 2021, 2020: 2022: 1. The only changes in retained earnings during 2022 were preferred dividends on preferred stock of $3,388,000 and net income. 2. The preferred stock is convertible. During the year, 6,592 shares (Series B) were issued. All shares were converted into 320,000 shares of common stock. No gain or loss was recorded on the conversion. 3. Common shares were issued in a public offering and upon the exercise of stock options. On the statement of shareholders' equity, Sessel's reports these two items on a single line entitled: "Issuance of shares." 2021: 1. Net income: $12,126,000. 2. Issuance of common stock: 5,580,000 shares at $112,706,000. 2020: 1. Net income: $13,494,000. 2. Issuance of common stock: 120,000 shares at $826,000. Required: From these disclosures, prepare comparative statements of shareholders' equity for 2022, 2021, and 2020. (Negative amounts should be indicated by a minus sign. Enter your answers in thousands ( 000 's).) SESSEL'S DEPARTMENT STORES, INC. Statement of Shareholders' Equity For the Years Ended December 31, 2022, 2021, and 2020 (values and shares in whole dollars)

Answer 1

To prepare the comparative statements of shareholders' equity for 2022, 2021, and 2020, you need to consider the changes in retained earnings and issuance of shares for each year. Calculate the impact of preferred dividends, the conversion of preferred stock, and the issuance of common stock to determine the changes in retained earnings. Use these calculations to prepare the comparative statements of shareholders' equity.

Step-by-step explanation:

To prepare the comparative statements of shareholders' equity for 2022, 2021, and 2020, we need to consider the changes in retained earnings and issuance of shares for each year. Let's start with 2022:

1. The preferred dividends on preferred stock were $3,388,000, which will be deducted from retained earnings.
2. The convertible preferred stock was issued, and all shares were converted into 320,000 shares of common stock. Since no gain or loss was recorded on the conversion, there is no impact on retained earnings.
3. Common shares were issued in a public offering and upon the exercise of stock options. The amount raised through these issuances will be added to retained earnings.

Next, for 2021 and 2020, we need to consider the net income and issuance of common stock for each year.

By applying these calculations, we can determine the changes in retained earnings for each year and prepare the comparative statements of shareholders' equity.

Answer 2

To change the top management at the Darkroom Windowshade Company, a combination of investors with over 50% of the shares must vote together. Investors 1 and 2, owning 20,000 and 18,000 shares respectively, can achieve this by teaming up with investor 3, as their combined shares would exceed 50% of the total voting power. With this majority, they can control the outcome of the vote.

Step-by-step explanation:

The Darkroom Windowshade Company situation is a scenario dealing with shareholder voting power and corporate governance. Specifically, the scenario addresses the minimum number of shareholders needed to change the company's top management and the implications of a voting agreement between two major shareholders, investor 1 and investor 2. To determine the minimum number of investors required, one would add the share ownership percentages, starting from the largest shareholder, until reaching over 50% control. Considering investors 1 and 2 have 20,000 and 18,000 shares respectively, combined they have 38% of the voting power (38,000/100,000). To ensure a majority, they would need more than 50%, meaning they would need to team up with at least investor 3 who owns 15% of the shares, bringing their total control to 53%. As 53% is a majority, investors 1 and 2 can be certain of getting their way in how the company is run when they vote together with investor 3.