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.