Chapter 11
Sweet Company's outstanding stock consists of 1,100 shares of cumulative 6% preferred stock with a $100 par value and 10,100 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividends Declared & Paid Year 1 $2,100 Year 2 $6,100 Year 3 $32,500 The amount of dividends paid to preferred and common shareholders in year 3 is:
$11,600 preferred; $20,900 common. Preferred stock dividend: 1,100 shares X $100/share X 6% = $6,600 per year X 3 years = $19,800 total preferred dividends. $19,800 - $8,200 paid to preferred in years 1 and 2 = $11,600 paid to preferred in year 3. $32,500 - $11,600 preferred = $20,900 to common
Sweet Company's outstanding stock consists of 1,500 shares of cumulative 4% preferred stock with a $100 par value and 10,500 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividends Declared & Paid Year 1 $2,500 Year 2 $7,000 Year 3 $34,500 The amount of dividends paid to preferred and common shareholders over the three-year period is:
$14,500 Preferred; $29,500 Common Preferred stock dividend: 1,500 shares X $100/share X 4% = $6,000 per year. Year 1: $2,500 to preferred, $0 to common. Year 2: $6,000 to preferred, $1,000 to common. Year 3: $6,000 to preferred, $28,500 to common. Preferred total = $2,500 + $6,000 + $6,000 = $14,500. Common total = $0 + $1,000 + $28,500 = $29,500.
Buffet Company was organized in January 20221 and has 1,000 shares of $200 par value, 10 percent, noncumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding. Dividends declared and paid each year are $10,000 in 2021, $15,000 in 2022, and $75,000 in 2023. During 2023, the dividends declared and paid each year are $10,000 in 2021, $15,000 in 2022, and $74,000 in 2023. During 2023, the dividends that must be paid to the preferred and common stockholders, respectively, total _____.
$20,000 and $55,000 Preferred dividend = 1,000 shares X $200 Par value X rate of 10% = $20,000. Remainder to common stockholders = $75,000 - $20,000 = $55,000.
Sweet Company's outstanding stock consists of 1,800 shares of cumulative 4% preferred stock with a $100 par value and 10,800 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividends Declared & Paid Year 1 $2,800 Year 2 $6,800 Year 3 $36,000 The amount of dividends paid to preferred and common shareholders over the three-year period is:
$21,600 preferred; $24,000 common. Preferred stock dividend: 1,800 shares X $100/share X 4% = $7,200 per year. Year 1: $2,800 to preferred, $0 to common. Year 2: $6,800 to preferred, $0 to common. Year 3: $12,000 to preferred, $24,000 to common. Preferred total = $2,800 +$6,800 +$12,000 = $21,600. Common total = $0 + $0 + $24,000 = $24,000.
Fargo Company's outstanding stock consists of 450 shares of noncumulative %5 preferred stock with a $10 par value and 5,500 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividends Declared & Paid Year 1 $35,000 Year 2 $7,000 Year 3 $44,000 The amount of dividends paid to preferred and common shareholders in year 1 is:
$225 preferred; $34,775 common Preferred stock dividend: 450 shares X $10/share X 5% = $225 $35,000 - $225 preferred = $34,775 to common
Cameron Company had 10,000 shares of common stock authorized and 9,500 shares issued and outstanding at the beginning of the year. There were no stock transactions during the year. During the year, the company reported net income of $30,000. Cameron Company has no preferred stock authorized. The company's basic earnings per share (rounded to two decimal points) is _____.
$3.16 Basic earnings per share = (Net income - Preferred dividends) / weighted-average common shares outstanding. Basic earnings per share = ($30,000 - $0) / 9,500 shares = $3.16 per share.
A company has 625 shares of $65 par value preferred stock outstanding. It also has 25,000 shares of common stock outstanding, and the total value of its stockholders' equity is $865,625. The company's book value per common share equals:
$33.00 Book Value per Share = Stockholders' Equity Applicable to Common/Common Shares Outstanding Book Value per Share = [$865,625 - (625 shares X $65/share]/25,000 = $33.00/share.
Anderson Corporation had a credit balance of $43,000 in its Retained Earnings account on December 31, 2018. Net income of $6,000 was reported on its income statement for the year ended December 31, 2019. Dividends in the amount of $5,625 were declared on December 31, 2018; the dividends are payable to the company's stockholders on February 1, 2019. The balance in its Retained Earnings account on December 31, 2019 equals _____.
$43,375 Beginning retained earnings of $43,000 +Net income of $6,000 - Cash dividends declared of $5,625 = Ending retained earnings of $43,375.
A company had a beginning balance in retained earnings of $43,100. It had net income of $6,100 and declared and paid cash dividends of $5,650 in the current period. The ending balance in retained earnings equals:
$43,550 Beginning balance $43,100 Plus net income $6,100 Less dividends ($5,650) Ending balance $43,550
A company issued 65 shares of $100 par value common stock for $7,500 cash. The total amount of paid-in capital is:
$7,500 Paid-in capital is the TOTAL amount paid by investors for common or preferred stock. They paid a total of $7,500 cash.
A company's board of directors votes to declare a cash dividend of $0.80 per share of common stock. The company has 16,000 shares authorized, 11,000 issued, and 10,500 shares outstanding. The total amount of the cash dividend is:
$8,400 $0.80 X 10,500 shares outstanding = $8,400
The basic earnings per share formula is:
(net income minus preferred dividends) divided by weighted-average common shares outstanding.
1. Prepare the journal entry to record Tamas Company's issuance of 6,100 shares of $100 par value, 9% cumulative preferred stock for $101 cash per share. 2. assuming the facts in part 1, if Tamas declares a year-end cash dividend, what is the amount of dividend paid to preferred shareholders? (assume no dividends in arrears.)
1) Debit Cash for $616,100 (6,100 X $101 = $616,100) Credit Preferred stock, $100 par value (6,100 X $100 = $610,000) Credit Paid-in capital in excess of par value, preferred stock for $6,100 ($616,100 - $610,000 = $6,100) 2) Preferred dividend = $100 par value/share X 9% X 6,100 shares = $54,900
1. A corporation issued 4,000 shares of $5 per value common stock for $35,000 cash. 2. A corporation issued 2,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $40,000. The stock has a $1 per share stated value. 3. A corporation issued 2,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $40,000. The stock has no stated value. 4. A corporation issued 1,000 shares of $50 par value preferred stock for $60,000 cash. Prepare journal entries to record each of the following four separate issuances of stock.
1. Debit Cash for $35,000 Credit Common stock, $5 par value for $20,000 (4,000 shares X $5 per share = $20,000) Credit Paid-In Capital in excess of par value, Common stock for $15,000 ($35,000 - $15,000) 2. Debit Organization expenses for $40,000 Credit Common stock, $1 stated value for $2,000 (2,000 shares X $1) Credit Paid-In Capital in excess of stated value, common stock for $38,000 ($40,000 - $2,000) 3. Debit Organization expenses for $40,000 Credit Common stock, no-par value for $40,000 4. Debit Cash for $60,000 Credit Preferred stock, $50 par value for $50,000 (1,000 shares X $50 per share) Credit Paid-In Capital in excess of par value, preferred stock for $10,000 ($60,000 - $50,000)
Select whether stockholders' equity would increase, decrease, or have no affect as a result of each separate transaction listed below. 1. No par common stock stock is issued. 2. Treasury stock is sold at cost for cash. 3. Cash dividends are paid to shareholders. 4. A 5-for-1 stock split occurs.
1. Increase 2. Increase 3. Decrease 4. No effect
Echer Company reports $2,700,000 of net income and declares $388,020 of cash dividends on its preferred stock for the year. At year-end, the company had 678,000 weighted-average shares of common stock. 1. What amount of net income is available to common stockholders? 2. What is the company's basic earnings per share (EPS)?
1. Net income - preferred dividends = Net income available to common stockholders. $2,700,000 - $388,020 = $2,311,980 2. Net income available to common stockholders / Weighted-average outstanding shares = Basic earnings per share. $2,311,980 / 678,000 = $3.41
Kelly Company reports $1,325,000 of net income and declares $185,500 of cash dividends on its preferred stock for the year. At year-end, the company had 300,000 weighted-average shares of common stock. 1. What is the company's basic earnings per share? 2. In the prior year, Kelley had a basic earnings per share (EPS) of $3.60. Did Kelley improve its earnings per share (EPS) in the current year?
1. Net income available to common stockholders* / Divided by weighted-average outstanding shares = Basic earnings per share. $1,139,500 / 300,000 = $3.80 *Net income - preferred dividends = net income available to common stockholders. $1,325,000 - $185,500 = $1,139,500
The following information is available for Payton Incorporated. At the end of the year, the market price of its common stock is $550 per share. Earnings per share totaled $100 and dividends per share in the amount of $15 were paid during the year. The dividend the year. The dividend yield is _____.
2.7% Dividend yield = Annual cash dividends per share / Market value per share. Dividends yield = $15 / %550 = 0.027 = 2.7%
The following data were reported by a corporation: Authorized shares 37,000 Issued shares 32,000 Treasury shares 12,000 The number of outstanding shares is:
20,000 Issued Shares - Treasury Shares = Outstanding Shares 32,000 - 12,000 = 20,000
The following information is available for Payton Incorporated. At the end of the year, the market price of its commons stock is $550 per share. Earnings per share totaled $100 and dividends per share in the amount of $15 were paid during the year. The company's price-earnings ratio is ______.
5.50 Price earnings ratio = Market value per share / Earnings per share. Price earnings ratio = $550 / $100 = 5.50
On January 15, Pinkney, Incorporated, issued 10,000 shares of $10 par value common stock in exchange for land and a building. Five years ago, the stockholder purchased the land for $40,000 and constructed the building at a cost of $90,000. At the time of the stock issuance, the land and the building had fair market values of $45,000 and $95,000, respectively. Complete the necessary journal entry.
A corporation records the assets received at tits market values as of the date of the transaction. The total market value of the assets received is $140,000 ($45,000 +$95,000). In effect, this stock has an issue price of $14 per share (issue price of $14 - par value of $10). The entry to record this transaction includes... Debit to Land for $45,000 Debit to Building for $95,000 Credit to Common Stock, $10 Par Value for $100,000 (10,000 shares X par value of $10 per share) Credit to Paid-in Capital in Excess of Par Value, Common Stock for $40,000 (10,000 shares X premium of $4 per share).
A corporation sold 16,500 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:
A credit to Common Stock for $165,000. Debit Cash $214,500 ($13/share X 16,500 shares) Credit Common Stock, $10 par value for $165,000 (16,500 shares X $10/share) Credit Paid-In Capital in Excess of Par Value, Common Stock for $49,500 ($214,500 - $165,000)
Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 330 shares to its attorneys in payment of a $5,300 charge for drawing up the articles of incorporation. The entry to record this transaction would include:
A debit to Organization Expenses for $5,300. *Debit Organization Expenses $5,300 *Common Stock, $10 Par Value $3,300 (330 X $10) *Credit Paid-In Capital in Excess of Par Value, Common Stock $2,000 ($5,300 - $3,300)
Prepare a classified balance sheet for Tucson Company for the year ended December 31 using the following data *Common stock $1,000 *Cash $20,000 *Salaries payable $5,000 *Retained earnings $7,000 *Accounts receivable $3,000 *Paid-in capital in excess of par value, common stock $17,000 *Notes payable (due in 5 years) $10,000 *Preferred stock $8,000 *Land $25,000 *Accounts payable $4,000 *Treasury stock $6,000 *Paid-in capital in excess of par value, preferred stock $2,000
ASSETS Current Assets: Cash $20,000 Accounts receivable $3,000 Total current plant assets: Land $25,000 Total Assets = $48,000 LIABILITIES Current liabilities Salaries payable $5,000 Accounts payable $4,000 Total current liabilities Long-term liabilities Notes payable $10,000 Total liabilities = $19,000 EQUITY Common stock $1,000 Paid-in capital in excess of par value, common stock $17,000 Preferred stock $8,000 Treasury stock ($6,000) Paid-in capital in excess of par value, preferred stock $2,000 Retained earnings $7,000 Total equity = $29,000 Total liabilities and equity = $48,000
Year 1 total cash dividends = $19,100 Year 2 total cash dividends = $27,700 Year 3 total cash dividends = $230,000 Year 4 total cash dividends = $380,000 York's outstanding stock consists of 85,000 shares of CUMULATIVE 7% preferred stock with a $5 par value and also 260,000 shares of common stock with a $1 par value. During its first four years of operation, the corporation declared and paid the following total cash dividends.
Annual Preferred dividend = Par Value per preferred share ($5) X Dividend rate (7%) = Dividend per preferred share (.35) X Number of preferred shares (85,000) = Preferred dividend ($29,750) Year 1 $19,100 goes to preferred ($10,650 in preferred stock dividends in arrears) Common gets zero Year 2 $27,700 goes to preferred ($10,650 from arrears year 1 +$17,050 preferred = $27,700) ($12,700 in preferred stock dividends in arrears) Common gets zero Year 3 $42,450 goes to preferred ($12,700 from arrears year 2 + $29,750 preferred = $42,450) (no more arrears) The remainder of $187,550 goes to Common Year 4 $29,750 goes to preferred and the remainder of $250,250 goes to Common.
Epic Company earned net income of $900,000 this year. There were 400,000 weighted-average common shares outstanding, and preferred shareholders received a $20,000 cash dividend. Compute Epic Company's basic earnings per share
Basic earnings per share = Net income - Preferred dividends / weighted-average common shares outstanding. $900,000 - $20,000 / 400,000 = $2.20 per share (basic earnings per share).
Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2021, the company's board of directors declares a 20 percent stock dividend. This stock dividend will be distributed on January 20, 2022 to the stockholders of record on January 15, 2022. The market price of the company's stock is $10 per share on December 31, 2021. Complete the necessary journal entry to record the declaration of the stock dividend.
Because it is LESS than 25 percent, this is considered a small stock dividend. A total of 20,000 shares (or 20% dividend X 100,000 issued shares) will be distributed. The entry to record the declaration includes a Debit to Retained Earnings for $200,000 (or 20,000 shares X market value of $10 per share), and a credit to Common Stock Dividend Distributable for $40,000 (20,000 shares X par value of $2 per share), and a credit to Paid-In Capital in Excess of Par Value, Common Stock for $160,000 (total market value of shares to be issued of $200,000 - total par value of shares to be issued of $40,000).
Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2021, the company's board of directors declares a 50 percent stock dividend. This stock dividend will be distributed on January 20, 2022 to the stockholders of record on January 15, 2022. The market price of the company's stock is $10 per share on December 31, 2021. Complete the necessary journal entry to record the declaration of the stock dividend.
Because its MORE than 25 percent, this is considered a large stock dividend. A total of 50,000 shares (or 50% dividend X 100,000 issued shares) will be distributed. The entry to record the declaration includes a Debit to Retained Earnings for $100,000 (50,000 shares X par value of $2 per share) Credit to Common Stock Dividend Distributable for $100,000 (50,000 shares X par value of $2 per share).
The stockholders' equity section of TVX Company on February 4 follows. Common stock-$5 par value, 150,000 shares authorized, 55,000 shares issued and outstanding........$275,000 Paid-in capital in excess of par value, common stock .........$429,000 Retained earnings...$549,000 TOTAL stockholders' equity...$1,253,000 On February 5, the directors declare 2% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock's market value is $41 per share on February 5 before the stock dividend. 2. Prepare the stockholders' equity section after the stock dividend is distributed. (Assume no other changes to equity.)
Common stock-$5 par value, 150,000 shares authorized, 55,000 shares issued and outstanding = $280,500 ($275,000 before + $5,500 Impact = $280,500 After) Paid-in capital in excess of par value, common stock = $468,600 ($429,000 Before + Impact of $39,600 = $468,600 After) Total paid-in capital = $749,100 (Before $704,000 + Impact $45,100 = $749,100 After) Retained earnings $503,900 (Before $549,000 - Impact $45,100 = $503,900 After) TOTAL stockholders' equity $1,253,000 (remains the same) *Debit to Retained earnings for $45,100 (55,000 outstanding shares X 2% = 1,100 shares X $41 market = $45,100) *Credit Common stock dividends distributable for $5,500 (1,100 shares X $5 par = $5,500) *Credit Paid-In Capital excess of par value, common stock for $39,600 ($45,100 - $5,500) *Debit Common stock dividends distributable for $5,500 (1,100 shares X $5 par) *Credit Common stock, $5 par value for $5,500 (1,100) shares X $5)
The three dates related to a cash dividend include all of the following:
Date of declaration Date of payment Date of record The date of declaration and the date of payment both require a journal entry.
On January 2, Carlton, Incorporated issued 100 shares of $10 par value common stock for cash of $10 per share. Complete the necessary journal entry.
Debit Cash $1,000 (100 shares X issuance price of $10 per share) Credit Common stock, $10 par value $1,000 (100 shares X par value of $10)
Prior to June 1, Sandler Company had no treasury stock transactions. Then, on June 1, the company paid $5,000 to purchase 100 shares of its common stock on the open market. On July 1, the company sold 50 of these shares at $52 per share. Then on August 1, the company sold the remaining 50 shares for $46 per share. Complete the necessary journal entry.
Debit Cash for $2,600 (Cash proceeds = 50 shares X $52 per share = $2,600) Credit to Treasury Stock for $2,500 (decrease in treasury account = Number of shares sold X cost per share = 50 shares X ($5,000 / 100 = $2,500) Credit Paid-in capital, treasury stock for $100 (Increase in paid-in capital, treasury stock = cash proceeds = decrease in treasury stock account = $2,600 - $2,500 = $100)
1. Prepare the journal entry to record Tamas Company's issuance of 5,000 shares of $100 par value, 7% cumulative preferred stock for $102 cash per share. 2. Assuming the facts in part 1, if Tamas declares a year-end cash dividend, what is the amount of dividend paid to preferred shareholders? (Assume no dividends in arrears.)
Debit Cash for $510,000 (5,000 shares X $102 cash per share = $510,000) Credit Preferred stock, $100 par value for $500,000 (5,000 shares X $100 par value = $500,000) Credit Pain-in capital in excess of par value, preferred stock for $10,000 ($510,000 - $500,000 = $10,000)
Eastline Corporation had 15,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 6,000 shares. At the time of the stock dividend, the market value per share was $22. The entry to record this dividend is:
Debit Retained Earnings $60,000 Credit Common Stock Dividend Distributable $60,000. 6,000/15,000 shares = large stock dividend of 40%. Large stock dividends are recorded at par value (6,000 shares X $10)
Global Corporation had 56,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 5% stock dividend when the market value of each share was $24. The entry to record the dividend declaration is:
Debit Retained Earnings $67,200 (56,000 shares X 5% X $24 = $67,200) Credit Common Stock Dividend Distributable $56,000 (56,000 shares X 5% X $20 = $56,000) Credit Paid-In Excess of Par Value, Common Stock $11,200. (56,000 X 5% X $4 = $11,200)
Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 43,000 shares authorized, 22,800 shares issued, and 17,200 shares of common stock outstanding. The journal entry to record the dividend declaration is:
Debit Retained Earnings $8,600 ($0.50 X 17,200 shares = $8,600) Credit Common Dividends Payable $8,600
On Sept. 1, Paddington, Incorporated, issued 1,000 shares of $10 stated value common stock for cash of $10 per share. Complete the necessary journal entry.
Debit to Cash $10,000 (issuance price of $10 per shar X 1,000 shares) Credit to Common Stock, $10 Stated Value for $10,000 (par value of $10 per share X 1,000 shares).
Prior to June 1, Sandler Company had no treasury stock transactions. Then, on June 1, the company paid $5,000 to purchase 100 shares of its common stock on the open market. Complete the necessary journal entry.
Debit to Treasury Stock for $5,000 Credit to Cash for $5,000
Green Planet Corporation has 5,000 shares of noncumulative 10% preferred stock with a $2 par value and 17,000 shares of common stock with a $0.01 par value. During its first two years of operation, Green Planet declared and paid the following total cash dividends. Year 1 total cash dividends = $800 Year 2 total cash dividends = $1,700
Holders of cumulative preferred stock are entitled to $1,000 of dividends a year (10% X $2 X 5,000 shares) plus any dividends skipped in prior years. Year 1: ($800 paid) Cumulative preferred = $800. (Preferred arrears - entitled to $1,000 but only got $800, so $200 goes in arrears for future year(s)). Common = $0 Year 2: ($1,700 paid) Cumulative preferred = $1,200 ($200 arrears + $1,000 from paid = $1,200 cumulative preferred) Common = $500 ($1,200 - $1,700 = $500)
Green Planet corporation has 4,100 shares of noncumulative 14% preferred stock with a $2 par value and 15,200 shares of common stock with a $0.01 par value. During its first two years of operation, Green Planet declared and paid the following total cash dividends Year 1 total cash dividends = $880 Year 2 total cash dividends = $1,520 Compute the dividends paid each year to each of the two classes of stockholders: preferred and common.
Holders of noncumulative stock are entitled to NO MORE than $1,148 of dividends in any one year (14% x $2 par value X 4,100 shares). Year 1: ($880 paid) Noncumulative preferred = $880. Common = $0. Year 2: ($1,520 paid) Noncumulative preferred = $1,148. Common = $372 ($1,520 - $1,148 = $372)
On February 20, services valued at $60,000 relating to the organization of a corporation were performed in exchange for 1,000 shares of its $25 par value common stock. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
In effect, this stock has an issue price of $60 per share ($60,000 / 1,000 shares), which means the stock is being issued at a premium of $35 per share (or issue price of $60 - par value of $25). The entry to record this transaction includes a Debit to Organization Expenses for $60,000 Credit to Common Stock, $25 Par Value for $25,000 (1,000 shares X par value of $25 per share) Credit to Paid-in Capital in Excess of Par Value, Common Stock for $35,000 (1,000 shares X premium of $35 per share).
Which of the following statements are true regarding corporations? It is a separate legal entity. Shareholders are not personally liable for corporate acts. The sale of shares from one stockholder to another does not impact operations. An exception is when it changes the makeup of directors. Corporations are often subject to fewer regulations than partnerships. The president and vice presidents choose the board of directors. Stockholders do not have the power to bind the corporation contracts. Stockholders are expected to hire and fire key employees.
It is a separate legal entity. Shareholders are not personally liable for corporate acts. The sale of shares from one stockholder to another does not impact operations. An exception is when it changes the makeup of directors. Stockholders do not have the power to bind the corporation to contracts.
On June 30, Sharper Corporation's stockholders' equity section of its balance sheet appears as follows (before any stock dividend or split). Sharper declares and immediately distributes a 3-for-2 stock split. After the distribution is made 1) prepare the updated stockholders' equity section 2) compute the number of shares outstanding Common stock $6.67 par value, 120,000 shares authorized, 75,000 shares issued and outstanding = $500,000 Paid-in capital in excess of par value, common stock = $200,000 Retained Earnings = $660,000 Total stockholders' equity = $1,360,000 (500,000 + 200,000 + 660,000)
NUMBER OF SHARES AFTER SPLIT Step 1: Identify number of shares outstanding = 50,000 Step 2: Multiply by the stock split ratio 3/2 Step 3: Compute number of shares outstanding after the split (50,000 X 3 / 2) = 75,000 PAR VALUE OF SHARES AFTER SPLIT Step 1: Identify the par value before the split = $10 Step 2: Multiply by the reciprocal of the stock split ratio = 2/3 Step 3: Compute the par value of shares after the split ($10 X 2 / 3) = $6.67 (rounded up)
On September 1, Ziegler Corporation had 60,000 shares of $5 par value common stock, and $180,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this transaction is:
No entry is made for this transaction.
_________ Stock refers to issued stock that is currently held by stockholders.
Outstanding
Alex Corporation reports the following components of stockholders' equity at December 31 of the PRIOR year. *Common stock-$25 par value, 70,000 shares authorized, 45,000 shares issued and outstanding = $1,125,000 *Paid-in capital in excess of par value, common stock = $90,000 *Retained earnings = $392,000 *Total stockholders' equity = $1,607,000 During the current year, the following transactions affected its stockholders' equity accounts. January 2 - Purchased 4,500 shares of its own stock at $25 cash per share. January 7 - Directors declared a $1.50 per share cash dividend payable on February 28 to the February 9 stockholders of record. February 28 - Paid the dividend declared on January 7. July 9 - Sold 1,800 of its treasury shares at $30 cash per share. August 27 - Sold 2,250 of its treasury shares at $21 cash per share. September 9 - Directors declared a $2 per share cash dividend payable on October 22 to September 23 stockholders of record. October 22 - Paid the dividend declared on September 9. December 31 - Closed the $67,000 credit balance (from net income) in the Income Summary account to Retained Earnings. REQUIRED: 1. Prepare journal entries to record each of these transactions. 2. Prepare a statement of retained earnings for the current year ended December 31. 3. Prepare the stockholders' equity section of the balance sheet as of December 31 of the current year.
REQUIRED 1. January 2 *Debit Treasury stock, common for $112,500 (4,500 shares X $25 per share) *Credit Cash for $112,500 January 7 *Debit retained earnings for $60,750 ($1.50 dividend per share X 40,500 outstanding shares) *Credit Cash for $60,750 July 9 *Debit Cash for $54,000 (sold 1,800 shares X $30 per share. *Credit Treasury stock, common for $45,000 (1,800 shares for $25 par rate) *Credit Paid-in capital, treasury stock for $9,000 (1,800 shares X $5 excess) August 27 *Debit Cash for $47,250 (2,250 shares X $21 per share) *Credit Paid-in capital, treasury stock for $9,000 ($56,250 - $47,250) *Credit Treasury stock, common for $56,250 (2,250 shares X $25 par rate September 9 *Debit retained earnings for $89,100 (Declared $2 dividend X 44,550 outstanding shares) *Credit Common dividend payable for $89,100 October 22 *Debit common dividend payable for $89,100 (paid from Sept 9) *Credit Cash for $89,100 December 31 *Debit Income summary for $67,000 *Credit Retained earnings for $67,000 REQUIREMENT 2: STATEMENT OF RETAINED EARNINGS *Retained earnings, December 31, prior year = $392,000 *Plus net income = $67,000 *Less cash dividends declared ($149,850) (January 7 $60,750 + September 9 $89,100 *Retained earnings, December 31, current year = $309,150 REQUIREMENT 3: STOCKHOLDERS' EQUITY SECTION OF THE BALANCE SHEET *Common stock - $25 par value = $1,125,000 *Paid-in capital in excess of par value, common stock = $90,000 *Retained earnings = $309,150 *Less: Cost of treasury stock ($11,250) *Total stockholders' equity = $1,512,900
Tuscan Incorporated had a retained earnings balance of $60,000 at December 31 of the PRIOR year. In the current year, Tuscan reported the following results *Reported net income of $100,000. *Cash dividends of $33,000 declared and paid. *Tuscan discovered this year that it made a math error three years ago; to correct for this, $12,000 (net of tax) must be added to the current year's beginning retained earnings balance. *Revised an estimate of a machine's salvage value. Depreciation increased by $1,000 per year.
Retained earnings, December 31, prior year, as previously reported = $60,000 Prior period adjustment, correction of error (net of tax) = $12,000 Retained earnings, December 31, prior year as adjusted = $72,000 ($60,000 + $12,000 error) Add net income = $100,000 Less cash dividends declared and paid = (-$33,000)
On June 30, Sharper Corporation's stockholder's equity section of its balance sheet appears as follows (before any stock dividend or split). Sharper declares and immediately distributes a 50% stock dividend. After the distribution is made 1) prepare the updated stockholders' equity section and 2) compute the number of shares outstanding Common stock - $10 par value, 120,000 shares authorized, 50,000 shares issued and outstanding = $500,000 Paid-in capital in excess of par value, common stock = $200,000 Retained earnings = $660,000 Total stockholders equity = $1,360,000
Step 1: Identify number of shares outstanding = 50,000 Step 2: Identify the stock dividend percentage = 50% Step 3: Compute number of new shares (Step 1 X Step 2) = 25,000 Step 4: Value new shares at market (small stock dividend) or par (large stock dividend) This is a large stock dividend, so we will use the $10 par value. Step 5: Determine amount to be capitalized (debited) to Retained Earnings (Step 3 X Step 4) = $250,000 1) PREPARE THE UPDATED STOCKHOLDERS' EQUITY SECTION *Before stock dividend = $500,000 + 200,000 = 700,000 + 660,000 = Total stockholders' equity of $1,360,000 *Impact of Stock Dividend = add $250,000 to common stock and subtract $250,000 from Retained Earnings *After Stock Dividend = ($500,000 + $ 250,000) $750,000 then add 200,000 = 950,000 then add retained earnings of 410,000 (660,000 - 250,000) = Total stockholders' Equity of $1,360,000 2) COMPUTE THE NUMBER OF SHARES OUTSTANDING Before stock dividend + Impact of Stock Dividend = After stock dividend 50,000 + 25,000 = 75,000
The stockholders' equity of TVX Company at the beginning of the day on February 5 follows: Common stock - $10 par value, 150,000 shares authorized, 60,000 shares issued and outstanding = $600,000 Paid-in capital in excess of par value, common stock = $425,000 Retained earnings = $550,000 Total stockholders' equity = $1,575,000 On February 5, the directors declare a 20% stock dividend distributable on February 28 to February 15 stockholders of record. The stock's market value is $40.00 per share on February 5 before the stock dividend. 1) Prepare entries to record both the dividend declaration and its distribution.
Step 1: Identify number of shares outstanding = 60,000 Step 2: Identify the stock dividend percentage = 20% Step 3: Compute number of new shares (Step 1 X Step 2) = 12,000 Step 4: Value new shares at market (small stock dividend) or par (large stock dividend) THIS IS A SMALL STOCK DIVIDEND so we will use market price of $40 per share. Step 5: Determine amount to be capitalized to Retained Earnings (Step 3 X Step 4) = $480,000 GENERAL JOURNAL Feb 5 *Debit Retained earnings (60,000 outstanding shares X 20% = 12,000 shares X $40 market) = 480,000 *Credit Common stock dividends distributable (12,000 shares X $10 par) = 120,000 *Paid-in capital in excess of par value, common stock ( 480,000 - 120,000) = 360,000 Feb 28 *Debit Common stock dividends distributable (12,000 shares X $10 par) = 120,000 *Credit Common stock, $10 par value (12,000 shares X $10 par) = 120,000
On July, 1, Hanson Corporation issued 10 shares of $100 par value preferred stock for cash of $1,000 per share. Complete the necessary journal entry.
The stock was issued at a premium of $90 per share (issue price of $100 - par value of $10). The entry includes a... Debit to Cash for $10,000 Credit to Preferred Stock, $100 Par Value for $1,000 (10 shares X par value of $100 per share) Credit to Paid-In Capital in Excess of Par Value, Preferred Stock for $9,000 (10 shares X premium of $900 per share).
All the following are true about a corporation except
a corporation issues bond certificates to its owners.
Prepare the journal entries to record Autumn Company's issuance of 63,000 shares of no-par value common stock assuming the shares: a. Sell for $29 cash per share. b. Are exchanged for land valued at $1,827,000
a. Debit Cash for $1,827,000 (63,000 shares X $29 cash per share) Credit Common Stock, no-par value for $1,827,000 b. Debit Land for $1,827,000 Credit Common stock, no-par value for $1,827,000
Prepare the journal entry to record Autumn Company's issuance of 76,000 shares of no-par common stock assuming the shares: a. Sell for $30 cash per share. b. Are exchanged for land valued at $2,280,000
a. Debit Cash for $2,280,000 (76,000 shares X $30 per share = $2,280,000) Credit Common stock, no-par value for $2,280,000 b. Debit Land for 2,280,000 Credit Common stock, no-par value for $2,280,000
Prepare the journal entry to record Zende Company's issuance of 75,000 shares of $5 par value common stock assuming the shares sell for: a. $5 cash per share b. $6 cash per share
a. Debit Cash for $375,000 (75,000 X $5 (par value)) Credit Common Stock, $5 par value. b. Debit Cash for $450,000 (75,000 X $6) Credit Common Stock, $5 par value for $375,000 (75,000 X $5 (par value)) Credit Paid-in excess of par value, common stock for $75,000 ($450,000 - $375,000 = $75,000)
The dividend yield is:
annual cash dividends per share divided by market value per share.
The statement of stockholders' equity _____.
describes changes in each of the major equity subcategories. Companies commonly replace the statement of retained earnings with a statement of stockholders' equity. The statement of stockholders' reports the beginning and ending balances of all the major equity accounts (rather than just the retained earnings account) and describes the changes that occur during the period.
All of the following are advantages of a corporation except
government regulation
If the dividend rate on preferred stock is lower than the rate the corporation earns on its assets, the effect of issuing preferred stock is to
increase the rate earned by common shareholders. Whenever the dividend rate on preferred stock is lower than the rate the corporation earns on its assets, the effect of issuing preferred stock is to increase the rate earned by common shareholders.
The price-earnings ratio is:
market value per share divided by earnings per share.
Unlike a stock dividend, a stock split ______.
reduces the par value of the stock. A stock split, unlike a stock dividend, reduces the par value of the stock. Stock splits do not necessitate journal entries. Neither a stock dividend nor a stock split alters the total amount of stockholders' equity.