Concept explainers
(1) and (2)
To journalize: The
(1) and (2)
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Record the transactions for Incorporation NE.
Date | Account Titles and Explanation | Debit ($) | Credit ($) | ||
20Y1 | |||||
January | 15 | Cash Dividends Payable | 34,320 | ||
Cash | 34,320 | ||||
(To record the payment of cash dividends) | |||||
March | 15 |
Cash
| 324,000 | ||
| 288,000 | ||||
Paid-in capital from treasury stock
| 36,000 | ||||
(To record sale of treasury stock for above the cost price of $6 per share) | |||||
April | 13 |
Cash | 1,600,000 | ||
Common Stock
| 1,000,000 | ||||
Paid-in Capital in Excess of stated value Common Stock
| 600,000 | ||||
(To record issuance of 200,000 shares in excess of stated value) | |||||
June | 14 | Stock Dividends | 184,500 | ||
Common Stock Dividends Distributable | 123,000 | ||||
Paid-in Capital in excess of Stated Value-Common stock | 61,500 | ||||
(To record the declaration of stock dividends) | |||||
July | 16 | Common Stock Dividends Distributable | 123,000 | ||
Common Stock | 123,000 | ||||
(To record the distribution of stock dividends) | |||||
October | 30 |
Treasury stock
| 300,000 | ||
Cash | 300,000 | ||||
(To record the purchase of 50,000 shares of treasury stock) | |||||
December | 30 | Cash Dividends | 63,568 | ||
Cash Dividends Payable | 63,568 | ||||
(To record the declaration of cash dividends) | |||||
December | 31 | Income summary | 775,000 | ||
Retained Earnings | 775,000 | ||||
(To close the income summary account) | |||||
December | 31 | Retained Earnings | 248,068 | ||
Stock dividends | 184,500 | ||||
Cash Dividends | 63,568 | ||||
(To record the closing of stock dividends and cash dividends to retained earnings account) |
Table (1)
Working note:
Calculate treasury stock cost per share.
Compute number of shares outstanding after the issuance of common stock on April 13.
Compute the stock dividends shares.
Compute the stock dividends amount payable to common stockholders.
Compute common stock dividends distributable value.
Compute paid-in capital in excess of par value-common stock.
Compute number of shares outstanding as on December 30.
Calculate the amount of cash dividend declared on December 28.
Enter the beginning balance and post the transactions into the stockholders’ equity accounts for Incorporation NE.
Common stock account is a component of stockholder’s equity with a normal credit balance.
Common stock | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
January 1 | Balance | $3,100,000 | |||
April 13 | Cash | $1,000,000 | |||
July 16 | Stock dividends distributable | $123,000 | |||
Total | $ 0 | Total | 4,223,000 | ||
December 31 | Balance | $4,223,000 |
Table (2)
Paid-in capital in excess of stated value - Common stock account is a component of stockholder’s equity with a normal credit balance.
Paid-in capital in excess of stated value - Common stock | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
January 1 | Balance | $1,240,000 | |||
April 13 | Cash | $600,000 | |||
June 14 | Stock dividends | $61,500 | |||
Total | $ 0 | Total | $ 1,901,500 | ||
December 31 | Balance | $ 1,901,500 |
Table (3)
Retained earnings are a component of stockholder’s equity with a normal credit balance.
Retained earnings | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
December 31 | Cash and stock dividends | $248,068 | January 1 | Balance | $4,875,000 |
December 31 | Income summary | $775,000 | |||
Total | $248,068 | Total | $5,650,000 | ||
December 31 | Balance | $5,401,932 |
Table (4)
Treasury stock is a component of stockholder’s equity with a normal debit balance.
Treasury stock | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
January 1 | Balance | $288,000 | March 15 | Cash | $288,000 |
October 30 | Cash | $300,000 | |||
Total | $ 588,000 | Total | $288,000 | ||
December 31 | Balance | $ 300,000 |
Table (5)
Paid-in capital from treasury stock is a component of stockholder’s equity with a normal credit balance.
Paid-in capital from treasury stock | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
March 15 | Cash | $36,000 | |||
Total | $ 0 | Total | $36,000 | ||
December 31 | Balance | $36,000 |
Table (6)
Stock dividend distributable is a contra stockholder’s equity with a normal credit balance.
Stock dividend distributable | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
July 16 | Common stock | $123,000 | June 14 | Stock dividend | $123,000 |
Total | $123,000 | Total | $123,000 | ||
December 31 | Balance | $0 |
Table (7)
Stock dividend is a component of stockholder’s equity with a normal debit balance.
Stock dividend | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
June 14 | Stock dividend distributable | $123,000 | December 31 | Retained earnings | $184,500 |
July 5 | Paid in capital in excess of stated value –Common value | $61,500 | |||
Total | $184,500 | Total | $184,500 | ||
December 31 | Balance | $0 |
Table (8)
Cash dividend is a component of stockholder’s equity with a normal debit balance.
Stock dividend | |||||
Date | Particulars | Debit | Date | Particulars | Credit |
December 30 | Cash dividend payable | $63,568 | December 31 | Retained earnings | $63,568 |
Total | $63,568 | Total | $63,568 | ||
December 31 | Balance | $0 |
Table (9)
(3)
To prepare: Statement of stockholders’ equity the year ended December 31, 20Y1.
(3)
Explanation of Solution
Statement of stockholders’ equity: The statement which reports the changes in stock, paid-in capital, retained earnings, and treasury stock, during the year is referred to as statement of stockholders’ equity.
Prepare a statement of stockholders’ equity for the year ended December 31, 20Y1.
Incorporation NE | |||||
Statement of Stockholders’ Equity | |||||
For the Year Ended December 31, 20Y1 | |||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total | |
Balances, January 1, 20Y1 | $3,100,000 | $1,240,000 | $4,875,000 | (288,000) | $8,927,000 |
Net income | 775,000 | 775,000 | |||
Dividends on stock | 123,000 | 61,500 | (184,500) | 0 | |
Cash dividends | (63,568) | (63,568) | |||
Paid-in capital from treasury stock | 36,000 | 288,000 | 324,000 | ||
Sale of treasury stock | (300,000) | (300,000) | |||
Issuance of additional stock | 1,000,000 | 600,000 | 1,600,000 | ||
Balances, December 31, 20Y1 | $4,223,000 | $1,937,500 | $5,401,932 | $(300,000) | $11,262,432 |
Table (10)
(4)
To prepare: The stockholders’ equity section of the December 31, 20Y1, balance sheet.
(4)
Explanation of Solution
Stockholders’ equity: It refers to the amount of capital that includes the amount of investment by the stockholders, earnings generated from the normal business operations, and less any dividends paid to the stockholders.
Prepare the stockholders’ equity section of the December 31, 20Y1, balance sheet.
Incorporation NE | |||
Partial Balance Sheet | |||
December 31, 20Y1 | |||
Stockholders' Equity | Amount | Amount | Amount |
Paid-in capital: | |||
Common stock, $5 stated (900,000 shares authorized; 620,000 shares issued, 794,600 shares outstanding) | $4,223,000 | ||
Excess over stated value | $1,901,500 | ||
Paid-in capital, common stock | $6,124,500 | ||
From sale of treasury stock | $36,000 | ||
Total paid-in capital | $6,160,000 | ||
Retained earnings | $5,401,932 | ||
Total | $11,562,432 | ||
Treasury common stock (50,000 shares at cost) | $(300,000) | ||
Total stockholders' equity | $11,262,432 |
Table (11)
Want to see more full solutions like this?
Chapter 12 Solutions
Corporate Financial Accounting
- Selected stock transactions The following selected accounts appear in the ledger of Parks Construction Inc. at the beginning of the current year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 400,000 shares of common stock at 11, receiving cash. b. Issued 5,000 shares of preferred 2% stock at 90. c. Purchased 150,000 shares of treasury common for 10 per share. d. Sold 80,000 shares of treasury common for 13 per share. e. Sold 20,000 shares of treasury common for 9 per share. f. Declared cash dividends of 1.50 per share on preferred stock and 0.06 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forwardEntries for selected corporate transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. The stockholders equity accounts of Nav-Go Enterprises Inc., with balances on January 1, 20Y3, are as follows: The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of 0.06 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for 34,320. Mar. 15. Sold all of the treasury stock for 6.75 per share. Apr. 13. Issued 200,000 shares of common stock for 8 per share. June 14. Declared a 3% stock dividend on common stock, to be capitalized at the market price of the stock, which is 7.50 per share. July 16. Issued the certificates for the dividend declared on June 14. Oct. 30. Purchased 50,000 shares of treasury stock for 6 per share. Dec. 30. Declared a 0.08-per-share dividend on common stock. 31. Closed the two dividends accounts to Retained Earnings. Instructions 1. Enter the January 1 balances in T accounts for the stockholders equity accounts listed. Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends. 2. Journalize the entries to record the transactions and post to the eight selected accounts. 3. Prepare a retained earnings statement for the year ended December 31, 20Y3. 4. Prepare the Stockholders Equity section of the December 31, 20Y3, balance sheet Using Method 1 of Exhibit 8.arrow_forwardThe following selected accounts appear in the ledger of EJ Construction Inc. at the beginning of the current fiscal year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 500,000 shares of common stock at 8, receiving cash. b. Issued 10,000 shares of preferred 1% stock at 60. c. Purchased 50,000 shares of treasury common for 7 per share. d. Sold 20,000 shares of treasury common for 9 per share. e. Sold 5,000 shares of treasury common for 6 per share. f. Declared cash dividends of 0.50 per share on preferred stock and 0.08 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forward
- Stockholders equity accounts and other related accounts of Gonzales Company as of January 1, 20--, the beginning of its fiscal year, are shown below. (a)Received 20,000 for the balance due on subscriptions for preferred stock with a par value of 40,000 and issued the stock. (b)Purchased 10,000 shares of common treasury stock for 18 per share. (c)Received subscriptions for 10,000 shares of common stock at 19 per share, collecting down payments of 45,000. (d)Issued 15,000 shares of common stock in exchange for land with a fair market value of 290,000. (e)Sold 5,000 shares of common treasury stock for Si00,000. (f)Issued 10,000 shares of preferred stock at 11.50 per share, receiving cash. (g)Sold 3,000 shares of common treasury stock for 17 per share. REQUIRED 1. Prepare general journal entries for the transactions, identifying each transaction by letter. 2. Post the journal entries to appropriate T accounts. The cash account has a beginning balance of 300,000. 3. Prepare the stockholders equity section of the balance sheet as of December 31, 20--. Net income for the year was 825,000 and dividends of 400,000 were paid.arrow_forwardSelected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows: a. Issued 15,000 shares of 20 par common stock at 30, receiving cash. b. Issued 4, 000 shares of 80 par preferred 5% stock at 100, receiving cash. c. Issued 500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. d. Declared a quarterly dividend of 0.50 per share on common stock and 1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. e. Paid the cash dividends declared in (d). f. Purchased 7,500 shares of Solstice Corp. at 40 per share, plus a 150 brokerage commission. The investment is classified as an available-for-sale investment. g. Purchased 8,000 shares of treasury common stock at 33 per share. h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for 24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment. i. Declared a 1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. j. Paid the cash dividends to the preferred stockholders. k. Received 27,500 dividend from Pinkberry Co. investment in (h). l. Purchased 90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of 37 5. The bonds are classified as a held-to-maturity long -term investment. m. Sold, at 38 per share, 2,600 shares of treasury common stock purchased in (g). n. Received a dividend of 0 .60 per share from the Solstice Corp. investment in (f). o. Sold 1,000 shares of Solstice Corp. at 45, including commission. p. Recorded the payment of semiannual interest on the bonds issue d in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method . q. Accrued interest for three months on the Dream Inc. bonds purchased in (I). r. Pinkberry Co. recorded total earnings of 240 ,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. s. The fair value for Solstice Corp. stock was 39. 02 per share on December 31, 2016. The investment is adjusted to fair value , using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments h ad a beginning balance of zero. Instructions 1. Journalize the selected transactions. 2. After all of the transaction s for the year ended December 31, 201 6, had been poste d [including the transactions recorded in part (1) and all adjusting entries), the data that follows were taken from the records of Equinox Products Inc. a. Prepare a multiple-step in come statement for the year ended December 31, 201 6, concluding with earnings per share . In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were 100,000. ( Round earnings per share to the nearest cent.) b. Prepare a retained earnings statement for the year ended December 31, 20 6. c. Prepare a balance sheet in report form as of December 31, 2016.arrow_forwardBasic Income Statement The following are selected account balances of Rule Corporation at the end of the current year: Rule is subject to a 30% income tax rate, and shareholders own 800 shares of its capital stock. Required: Prepare the income statement for Rule.arrow_forward
- Entries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $10 stated value (650,000 shares authorized, 440,000 shares issued) $4,400,000 Paid-In Capital in Excess of Stated Value-Common Stock 850,000 Retained Earnings 9,990,000 Treasury Stock (44,000 shares, at cost) 660,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $55,440. Mar. 15. Sold all of the treasury stock for $18 per share. Apr. 13. Issued 85,000 shares of common stock for $1,360,000. June 14. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share. July 16. Issued shares of stock for the…arrow_forwardEntries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. The stockholders' equity accounts of Nav-Go Enterprises Inc., with balances on January 1, 20Y3, are as follows: Common Stock, $5 stated value (900,000 shares authorized, 620,000 shares issued) $3,100,000 Paid-In Capital in Excess of Stated Value—Common Stock 1,240,000 Retained Earnings 4,875,000 Treasury Stock (48,000 shares, at a cost of $6 per share) 288,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.06 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $34,320. Mar. 15. Sold all of the treasury stock for $6.75 per share. Apr. 13. Issued 200,000 shares of common stock for $8 per share. June 14. Declared a 3% stock dividend on common stock, to be capitalized at the market price of the stock, which is $7.50 per share.…arrow_forwardEntries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $10 stated value (550,000 shares authorized, 380,000 shares issued) $3,800,000 Paid-In Capital in Excess of Stated Value-Common Stock 700,000 Retained Earnings 8,630,000 Treasury Stock (38,000 shares, at cost) 532,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.13 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $44,460. Mar. 15. Sold all of the treasury stock for $17 per share. Apr. 13. Issued 70,000 shares of common stock for $1,120,000. June 14. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share. July 16. Issued shares of stock for the…arrow_forward
- Entries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $10 stated value (550,000 shares authorized, 380,000 shares issued) $3,800,000 Paid-In Capital in Excess of Stated Value-Common Stock 700,000 Retained Earnings 8,630,000 Treasury Stock (38,000 shares, at cost) 570,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.15 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $51,300. Mar. 15. Sold all of the treasury stock for $18 per share. Apr. 13. Issued 70,000 shares of common stock for $1,260,000. June 14. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share. July 16. Issued shares of stock for the…arrow_forwardEntries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $10 stated value (400,000 shares authorized, 280,000 shares issued) $2,800,000 Paid-In Capital in Excess of Stated Value-Common Stock 550,000 Retained Earnings 6,360,000 Treasury Stock (28,000 shares, at cost) 392,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $35,280. Mar. 15. Sold all of the treasury stock for $17 per share. Apr. 13. Issued 55,000 shares of common stock for $880,000. June 14. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share. July 16. Issued shares of stock for the…arrow_forwardEntries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $10 stated value (400,000 shares authorized, 280,000 shares issued) $2,800,000 Paid-In Capital in Excess of Stated Value-Common Stock 550,000 Retained Earnings 6,360,000 Treasury Stock (28,000 shares, at cost) 392,000 The following selected transactions occurred during the year: Jan. 15. Paid cash dividends of $0.15 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $37,800. Mar. 15. Sold all of the treasury stock for $17 per share. Apr. 13. Issued 55,000 shares of common stock for $880,000. June 14. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share. July 16. Issued shares of stock for the…arrow_forward
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- College Accounting, Chapters 1-27 (New in Account...AccountingISBN:9781305666160Author:James A. Heintz, Robert W. ParryPublisher:Cengage LearningSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning