Intermediate Accounting Chapter 18: Shareholders' Equity

For a cash dividend, the ex-dividend date:

Typically, is one business day before the date of record.

Encore Industries owned investment securities with a book value of $45 million on August 12. At that time, Encore's board of directors declared a property dividend consisting of these securities. The fair value of the securities was as follows: Declaration - August 12 $58million Record date - September 1 62million Distribution date - September 20 60million What amount of gain should Encore recognize in earnings in connection with this property dividend?

$13 million

Distributions of stock to current shareholders of a corporation are called what type of distribution?

stock dividend

Which of the following business forms include the limited liability protection of a corporation for its owners (except to the extent of their investment)?

-Corporation -Limited liability company -S Corporation

Cash and property dividends ______ total equity, and stock dividends _______ total equity.

decrease; do not effect

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

-Debit cash $4,500 -Debit retained earnings $300. -Credit treasury stock $5,000 -Debit paid-in capital—share repurchase $200. (Reason: In year 2, the company will debit cash for $1,200 and credit treasury stock for $1,000 and paid-in capital-share repurchase for $200. In year 3, the company must debit the share repurchase account for $200 and the balance of $300 is debited to retained earnings.)

On November 1, the board of directors of Castle Industries declares a cash dividend of $1 per share on its 1 million shares, payable to shareholders of record November 15, to be paid December 1. The ex-dividend date is two days before the date of record. On which of the following dates will journal entries be recorded?

-November 1 -December 1

Which of the following are advantages of the corporate form of business?

-Ownership interest in a corporation is easily transferred -Separate legal entity -Shareholders do not have a mutual agency relationship

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?

-The shares can be formally retired. -The shares can be called treasury shares.

When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply.)

-credit to additional paid-in capital -credit to common stock

If more than one class of shares is authorized, what type of information must be specified? (Select all that apply)

-designation to distinguish each class -specific rights for each class

Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.)

-distribution of assets in liquidation -dividends

Disadvantages of the corporate form of business are (Select all that apply.)

-double taxation. -government regulation.

Corporations can raise capital by:

-issuing stock. -operating at a profit. -borrowing.

A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares? (Select all that apply.)

-paid-in capital in excess of par -common stock -retained earnings

Match the term and the definition. 1. Might allow preferred shareholders the options to return their shares for a predetermined price. 2. If the specified dividend is not paid in a given year, the unpaid dividends must be made up in a later dividend year before any dividends are paid on common shares. 3. If the specified dividend is not declared in any given year, it need never be paid. 4. Preferred shareholders are allowed to receive additional dividends beyond the stated amount. 5. Preferred shareholders dividends are limited to the stated amount.

1. Redemption Privilege 2. Cumulative 3. Noncumulative 4. Participating 5. Nonparticipating

Which of the following transactions are classified as a stock dividend?

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

Historically, par value indicated (select all that apply)

-the real value of shares -the amount of net assets that were not available for distribution to shareholders. -the issue price of all shares

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

When the dividend exceeds the balance in retained earnings, the excess is referred to as a ____ dividend.

liquidating

A reverse stock split requires

no journal entry

Which of the following is subject to double taxation?

Corporations

Gabriel Company views share buybacks as treasury stock. In its first treasury stock transaction, Gabriel purchased treasury stock for more than the price at which the stock was originally issued. What is the effect of the purchase of the treasury stock on each of the following? Paid-in capital, Retained earnings a. decrease, decrease b. decrease, no effect c.no effect, no effect d.no effect, decrease

Option c

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

Which of the following accurately describes shareholders' equity?

Ownership interests of the shareholders

A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events is a(n)

asset.

What element of the financial statements is described by the following definition? "Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions."

assets

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

The statement of shareholders' equity reports

the changes in each shareholder equity account for the period.

A property dividend: (Select all that apply.)

-is a noncash distribution to owners. -reduces retained earnings.

Required Information #3

A corporation is a separate legal entity—separate and distinct from its owners. A corporation is well suited to raising capital and has limited liability. However, it gives rise to "double taxation." Common shareholders usually have voting rights; preferred shareholders usually have a preference to a specified amount of dividends and to assets in the event of liquidation.

When investors purchase shares of stock, it is classified as

paid-in capital.

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?

Credit common stock for the par amount.

The purposes of a quasi reorganization are to (Select all that apply.)

-reduce the deficit in retained earnings. -write down inflated assets.

True or false: Treasury stock represents investments in treasury securities of the U.S. government.

False, Treasury stock represents shares of stock previously issued by the corporation that are repurchased by the corporation.

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False, When investors purchase shares of stock in a corporation, the corporation records the transaction as paid-in capital.

What is the effect of the declaration and subsequent issuance of a stock split (effected in the form of a stock dividend) on each of the following? Retained earnings, Paid-in capital a.no effect, no effect b.no effect, increase c. increase, decrease d. increase, increase

Option a

When a corporation issues two securities for a single price, how is the issue price usually allocated?

The cash received is allocated based on the relative market value of each security.

A restriction of retained earnings signifies that

a portion of retained earnings is not available for dividends.

Retained earnings is typically reported on the balance sheet

as a single amount.

A frequent reason for a stock split is to

cause the market price per share to decline

The most important advantage to the corporate form of business is

limited liability.

Treasury shares are the same as shares that have never been issued; therefore, treasury shares

may not vote or receive cash dividends.

The two types of corporations are

profit and not-for-profit.

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as ____ earnings.

retained

The ownership interests of the investors in a corporation are referred to as

shareholders' equity.

A quasi-reorganization allows a firm that is undergoing financial difficulties to

write-down inflated assets and reduce an accumulated deficit

A restriction of retained earnings (select all that apply)

-communicates the portion of retained earnings not available for dividends -indicates management's intention to withhold assets for a specified purpose

Required Information #1

Shareholders' equity is the owners' residual interest in a corporation's assets. It arises primarily from (1) amounts invested by shareholders and (2) amounts earned by the corporation on behalf of its shareholders. These are reported as (1) paid-in capital and (2) retained earnings in a balance sheet. A statement of shareholders' equity reports the sources of the changes in individual shareholders' equity accounts.

Required Information #4

Shares sold for consideration other than cash (maybe services or a noncash asset) should be recorded at the fair value of the shares or the noncash consideration, whichever seems more clearly evident.

Mandatorily redeemable preferred stock is reported as

a liability on the balance sheet.

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

A distribution of assets to shareholders is referred to as a ____.

dividend

A nonreciprocal transfer to owners is referred to as a

property dividend.

The term treasury stock refers to

stock that is repurchased and not retired.

On May 1, Year 3, the board of directors of Boxer Industries declared a property dividend of 4,500 shares of King Corporation common stock that Boxer had purchased as an investment (book value: $58,500). The market value of the 4,500 King shares was $121,500 (or $27 per share) on the date of declaration and $180,000 (or $40 per share) on the date of distribution. What amount will be debited to Retained earnings in the journal entry recorded on the declaration date?

Amount debited to Retained Earnings on the Date of Declaration: $121,500

Assets = Liabilities + Shareholders' Equity, so Shareholders' Equity =

Assets - Liabilities *Net Assets

Indicate the effect of each type of dividend on the financial statements.

Cash Dividend - Reduce retained earnings; reduce a current asset. Property Dividend - Reduce retained earnings, recognize gain on appreciation on income statement. Small Stock Dividend - Reduce retained earnings for fair value; increase common stock by par value; increase additional paid-in capital. Large Stock Dividend - Reduce retained earnings by par; increase common stock by par.

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

A company that repurchases its own securities accounts for the buyback as:

retired shares or treasury shares.

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:

reverse stock split

The following is a news item reported by Reuters: WASHINGTON, Jan 29 (Reuters)—Crossfire Medical Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 3 million shares of common stock. In a filing with the U.S. Securities and Exchange Commission, it said it plans to use the proceeds from the offering for general corporate purposes, working capital, research and development, and acquisitions. After the sale there will be about 31.0 million shares outstanding in the Arlington, Tennessee-based company, according to the SEC filing. Wright shares closed at $18.15 on Nasdaq. The common stock of Crossfire Medical Group has a par of $0.03 per share. Required: Prepare the journal entry to record the sale of the shares assuming the price existing when the announcement was made and ignoring share issue costs. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

(d) Cash - 54,450,000 (c) Paid-in Capital - Excess of par - 54,360,000 (c) Common Stock - 90,000

If a company has preferred stock outstanding, a variation of calculating return on shareholders' equity can be made by making which adjustments to the ratio? (Select all that apply.)

-Subtract preferred dividends from net income. -Use average common shareholders' equity in the denominator.

Preferred stock is similar to a bond when it has which of the following features?

-a dividend rate -a mandatory redeemable feature

Which account is a stockholders' equity account?

Additional paid-in capital

Required Information #6

Retained earnings represents, in general, a corporation's accumulated, undistributed, or reinvested net income (or net loss). Distributions of assets are dividends.

Owners of ____ corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.

S

A company that is distributing liquidating dividends tends to be in the process of:

dissolving

Brandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries? (Select all that apply.)

-Credit common stock $5,000. -Debit cash $19,500. -Credit additional paid-in capital $14,500.

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction? (Select all that apply.)

-the quoted market price for the shares -the amount of cash that would be paid to purchase the asset

The following is from the 2021 annual report of Kaufman Chemicals, Inc.: Statements of Comprehensive, Income Years Ended: December 31 2021 2020 2019 Net income $999 $829 $684 Other comprehensive income: Change in net unrealized gains on AFS investments, net of tax of$32, ($20), and $22 in 2021, 2020, and 2019, respectively 45 (28) 30 Other (3) (1) 1 Total comprehensive income$1,041 $800 $715 Kaufman reports accumulated other comprehensive income in its balance sheet as a component of shareholders' equity as follows: ($ in millions) 2021 2020 Shareholders' equity: Common stock 400 400 Additional paid-in capital 9,484 9,484 Retained earnings 8,564 8,008 Accumulated other comprehensive income 140 98 Total shareholders' equity $18,588 $17,990 Required:4. From the information provided, determine how Kaufman calculated the $140 million accumulated other comprehensive income in 2021. (Negative amount should be indicated by a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Accumulated Other Comprehensive Income - $98,000,000 Change in Net Unrealized Gains on Investments - 45,000,000 Change in "Other" - -3,000,000 Accumulated Other Comprehensive Income 2021 - $140,000,000

True or false: A corporation is owned by debt and equity holders.

False, a corporation is owned by its shareholders, who are equity holders.

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

Required Information #2

Comprehensive income encompasses all changes in equity except those caused by transactions with owners (like dividends and the sale or purchase of shares). It includes traditional net income as well as "other comprehensive income."

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit paid-in capital—treasury shares $400. (Reason: The shares were originally purchased for $10 per share. They were sold for $8 per share. Therefore the debit to paid-in capital is $400 (($10-$8) x 200 shares))

The shareholders' equity of Tru Corporation includes $680,000 of $1 par common stock and $1,280,000 par value of 7% cumulative preferred stock. The company paid $68,000 cash dividends in Year 1 and another $68,000 cash dividends in Year 2. The board of directors of Tru declared cash dividends of $158,000 during Year 3. What is the amount of the cash dividends that will be paid to the common shareholders in Year 3?

Dividends to Common Shareholders: $25,200

Which of the following statements about accumulated other comprehensive income is true?

It is reported as part of stockholders' equity in the balance sheet.

Required Information #7

Most corporate dividends are paid in cash. When a noncash asset is distributed, it is referred to as a property dividend. The fair value of the assets to be distributed is the amount recorded for a property dividend.

Comprehensive Income

Net Income + Other gains, losses, and adjustments that change shareholders' equity (Accumulated Comprehensive Income)

What type of corporations include churches, hospitals, universities, and charities?

Not-for-profit

Which of the following statements properly describes a preemptive right?

The right to maintain one's percentage share of ownership when new shares are issued

Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?

The state in which the corporation is incorporated

Required Information #5

When a corporation retires previously issued shares, those shares assume the same status as authorized but unissued shares—just the same as if they had never been issued. Payments made to retire shares are viewed as a distribution of corporate assets to shareholders. When reacquired shares are viewed as treasury stock, the cost of acquiring the shares is temporarily debited to the treasury stock account. Recording the effects on specific shareholders' equity accounts is delayed until later when the shares are reissued.

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

If preferred shares must be redeemed by a certain date, they should be classified as

debt.

The date on which a cash dividend becomes a liability to a corporation is the

declaration date.

When a company repurchases shares held as treasury stock, the number of shares outstanding:

decreases

In a corporation, shareholders' liability is

limited to the amount of the investment.

Historically, par value was considered to be

the amount of net assets that were not available for distribution to shareholders.

Dab Corporation was organized on January 1, Year 1. During Year 1, Dab had the following transactions relating to shareholders' equity: - Issued 28,000 shares of common stock in exchange for cash of $442,400 - Reported net income of $98,000 - Reported net holding gains on available-for-sale investments in debt securities of $1,000 - Paid dividends of $54,000 What is total shareholders' equity at the end of Year 1?

$487,400 ($442,400 + (98,000 - 54,000) + 1,000 - 0)

Todd Corporation sold 4 million of its $1 par common shares at $6 per share. The company received net proceeds from the public offering of $23,600,000, after deducting legal, promotional, and accounting services necessary to effect the sale. Prepare the appropriate journal entry for the sale of the stock.

(d) Cash - 23,600,000 (c) Common Stock - 4,000,000 (4 million x $1 par common shares) (c) Paid-in Capital - Excess of par - 19,600,000

During Year 1, Long Beach Corporation completed the treasury stock transactions described below: Jan. 2 Reacquired 1,000 shares at $10 per share Feb. 2 Sold 400 shares at $12 per share Prepare the appropriate journal entry to record the sale of the treasury stock on February 2.

(d) Cash - 4,800 (400 x 12) (c) Treasury Stock - 4,000 (400 x 10) (c) Paid-in Capital - Share repurchase - 800 (400 x 2)

As of the end of Year 1, the shareholders' equity of Philip Corporation consisted of: Common stock, 80,100 shares at $1 par - $80,100 Paid-in capital—excess of par - 168,210 Retained earnings - 121,000 At the beginning of Year 2, the company repurchased and retired 1,100 shares at $8.10 per share. Prepare the appropriate journal entry for the repurchase and retirement of the shares.

(d) Common Stock - 1,100 (d) Paid-in Capital Common Stock - 2,310 (168,210/80,100=2.1, 2.1 x 1,100 = 2,310) (d) Retained Earning - 5,500 (1,100 x (8.1-1-1.2=5) = 5,500) (c) Treasury Stock - 8,910

Which of the following are characteristics of treasury stock? (Select all that apply.)

-It is stock that is repurchased by the company. -It does not receive a dividend. -It has no voting rights.

Which of the following accounts are classified as shareholders' equity?

-common stock -retained earnings -additional paid-in capital

Indicate whether each item decreases or increases the balance in the retained earnings account. 1. Buyback of Shares 2. Dividends 3. Net Income 4. Net Loss

1. Decrease 2. Decrease 3. Increase 4. Decrease

Required Information #8

A stock dividend is the distribution of additional shares of stock to current shareholders. For a small stock dividend (25% or less), the fair value of the additional shares distributed is transferred from retained earnings to paid-in capital. For a stock distribution of 25% or higher, the par value of the additional shares is reclassified within shareholders' equity if referred to as a stock split effected in the form of a stock dividend, but if referred to merely as a stock split, no journal entry is recorded.

Retained Earnings

Accumulated amount of net income - Accumulated amount of dividends declared

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company's board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

Amount debited to retained earnings to record stock dividend: $14,560

Total Shareholders' Equity

Paid-in Capital + Retained Earnings +/- Accumulated other comprehensive income - Treasury Stock

Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?

S corporation

When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated?

The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

When a company repurchases its stock and immediately retires the stock, which of the following occurs?

The equity accounts are reduced for the amount in which the shares were originally sold.

Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to

additional paid-in capital for $87,000.

The effect of share issue costs is to

reduce paid-in capital in excess of par.

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

Amounts earned by the corporation on behalf of its shareholders and recorded as a single amount are referred to as:

retained earnings.

A corporation is owned by its ___.

shareholders

The costs for legal, promotional, and accounting services to issue stock should be

subtracted from the proceeds of issuing stock.

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock

Corporations raise equity capital by

-operating at a profit. -issuing stock

The return to common shareholders' equity is calculated by subtracting ______ from net income and dividing that amount by average ____________.

preferred dividends; shareholders' equity attributed to common shareholders

State laws regulate which of the following corporate activities? (Select all that apply.)

-nature of share authorization -repurchase of stock -issuance of stock

The following data were reported in the shareholders' equity section of the Jetson Company's comparative balance sheets for the years ended December 31: 2021 2020 Common stock, $1 par per share $306 $300 Paid-in capital - excess of par 174 150 Retained earnings 314 300 During 2021, Jetson declared and paid cash dividends of $45 million. The company also declared and issued a stock dividend. No other changes occurred in shares outstanding during 2021. What was Jetson's net income for 2021?

$89 million

ICOT Industries issued 29 million of its $1 par common shares for $496 million on April 11. Legal, promotional, and accounting services necessary to effect the sale cost $4 million. Required: 1. Prepare the journal entry to record the issuance of the shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

(d) Cash - 492 (c) Paid-in Capital - Excess of par - 463 (c) Common Stock - 29

Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2021. At January 1, 2021, the corporation had outstanding 108 million common shares, $1 par per share. Retained Earnings ($ in millions) 103 Beginning balance Retirement of 8 million common shares for $32 million 6 87 Net income for the year Declaration and payment of a $0.35 per share cash dividend 35 Declaration and distribution of a6% stock dividend 34 115 Ending balance Required: 1. From the information provided by the account changes, you should be able to recreate the transactions that affected Brenner-Jude's retained earnings during 2021. Prepare the journal entries that Brenner-Jude must have recorded during the year for these transactions. (Hint: In lieu of revenues and expenses, use an account titled "Income summary" to close net income or net loss.) 2. Prepare a statement of retained earnings for Brenner-Jude for the year ended 2021.

1. (d) Common Stock - 8 (d) Paid-in Capital - Excess of par - 18 (d) Retained Earnings - 6 (c) Cash - 32 2. (d) Income Summary - 87 (c) Retained Earnings - 87 3. (d) Retained Earnings - 35 (c) Cash - 35 4. (d) Retained Earnings - 34 (c) Common Stock - 6 (c) Paid-in Capital - Excess of par - 28 Statement of Retained Earnings: Balance at Jan. 1, 103 Net Income for the Year, 87 Deductions, Cash Dividends, 35 Stock Dividend, 34 Retirement of Common Stock, 6 Balance at Dec. 31, 12?

Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific eight-digit Codification citation (XXX-XX-XX-X) for accounting for each of the following items: 1. Requirements to disclose within the financial statements the pertinent rights and privileges of the various securities outstanding. 2. Requirement to record a "small" stock dividend at the fair value of the shares issued. 3. Requirement to exclude from the determination of net income gains and losses on transactions in a company's own stock.

1. 505-10-50-3 2. 505-20-30-3 3. 505-10-25-2

In 2021, Western Transport Company entered into the treasury stock transactions described below. In 2019, Western Transport had issued 160 million shares of its $1 par common stock at $15 per share. Required: Prepare the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) 1. On January 23, 2021, Western Transport reacquired 10 million shares at $18 per share. 2. On September 3, 2021, Western Transport sold 1 million treasury shares at $19 per share. 3. On November 4, 2021, Western Transport sold 1 million treasury shares at $16 per share.

1. January 23, 2021 (d) Treasury Stock - 180 (c) Cash - 180 2. September 3, 2021 (d) Cash - 19 (c) Treasury Stock - 18 (c) Paid-in Capital - Share Repurchase - 1 3. November 4, 2021 (d) Cash - 16 (d) Paid-in Capital - Share Repurchase - 1 (d) Retained Earnings - 1 (c) Treasury Stock - 18

Borner Communications' articles of incorporation authorized the issuance of 135 million common shares. The transactions described below effected changes in Borner's outstanding shares. Prior to the transactions, Borner's shareholders' equity included the following: Shareholders' Equity, ($ in millions) Common stock, 115 million shares at $1 par $115 Paid-in capital - excess of par 345 Retained earnings 305 Required: Assuming that Borner Communications retires shares it reacquires (restores their status to that of authorized but unissued shares), record the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) 1. On January 7, 2021, Borner reacquired 2 million shares at $5.50 per share. 2. On August 23, 2021, Borner reacquired 4 million shares at $3.00 per share. 3. On July 25, 2022, Borner sold 3 million common shares at $6 per share.

1. January 7, 2021 (d) Common Stock - 2 (d) Paid-in Capital - Excess of par - 6 (345/115 = 3, 3 x 2 = 6) (d) Retained Earnings - 3 (11-6-2=3) (c) Cash - 11 (2 x 5.50 per share = 11) 2. August 23, 2021 (d) Common Stock - 4 (d) Paid-in Capital - Excess of par - 12 (345/115 = 3, 3 x 4 = 12) (c) Cash - 12 (4 x 3.00 per share = 12) (c) Paid-in Capital - Share Repurchase - 4 (16 - 12 = 4) 3. July 25, 2022 (d) Cash - 18 (3 x 6 per share = 18) (c) Common Stock - 3 (c) Paid-in Capital - Excess of par - 15 (18 - 3 = 15)

What is the effect of the declaration and subsequent issuance of a stock split (not effected in the form of a stock dividend) on each of the following? Retained earnings, Paid-in capital a.no effect, no effect b.no effect, increase c. increase, decrease d. decrease, increase

Option a