At the beginning of 2018, Thompson Service, Inc., showed the following amounts in the stock-holders' equity section of its balance sheet.Stockholders' equity:Capital stock, $1 par value, 500,000 shares authorized,382,000 issued and outstanding………………………………..       $382,000Additional paid-in capital: capital stock……………………….   4,202,000  Total paid-in capital…………………………………………        $4.584,000Retained earnings……………………………………………...         2.704,600Total stockholders' equity……………………………………..     $7,288,600The transactions relating to stockholders' equity during the year are as follows.Jan.3 Declared a dividend of $1 per share to stockholders of record on January 31,payable on February 15Feb. 15 Paid the cash dividend declared on January 3.Apr. 12 The corporation purchased 6,000 shares of its own capital stock at a price of$40 per share.May 9 Reissued 4,000 shares of the treasury stock at a price of $44 per share.June1 Declared a 5 percent stock dividend to stockholders of record at June 15, tobe distributed on June 30. The market price of the stock at June 1 was $42 pershare. (The 2,000 shares remaining in the treasury do not participate in thestock dividend.)June 30 Distributed the stock dividend declared on June 1.Aug. 4 Reissued 600 of the 2,000 remaining shares of treasury stock at a price of $37per share.Dec. 31 The Income Summary account, showing net income of the year 1,928,000,was closed into the Retained Earnings account.Dec. 31 The $382,000 balance in the Dividends account was closed into the RetainedEarnings account.Prepare in general journal form the entries to record these transactions.Prepare the stockholders' equity section of the balance sheet at December 31, 2018. Include a supporting schedule showing your computation.of retained earnings at that date.Instructionsc. Compute the maximum cash dividend per share that legally could be declared at December31, 2018, without impairing the paid-in capital of Thompson Service. (Hint: The availabilityof retained earnings for dividends is restricted by the cost of treasury stock owned.)

Question
Asked Aug 7, 2019
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At the beginning of 2018, Thompson Service, Inc., showed the following amounts in the stock-
holders' equity section of its balance sheet.


Stockholders' equity:
Capital stock, $1 par value, 500,000 shares authorized,
382,000 issued and outstanding………………………………..       $382,000
Additional paid-in capital: capital stock……………………….   4,202,000
  Total paid-in capital…………………………………………        $4.584,000


Retained earnings……………………………………………...         2.704,600
Total stockholders' equity……………………………………..     $7,288,600


The transactions relating to stockholders' equity during the year are as follows.


Jan.3 Declared a dividend of $1 per share to stockholders of record on January 31,
payable on February 15

Feb. 15 Paid the cash dividend declared on January 3.


Apr. 12 The corporation purchased 6,000 shares of its own capital stock at a price of
$40 per share.


May 9 Reissued 4,000 shares of the treasury stock at a price of $44 per share.


June1 Declared a 5 percent stock dividend to stockholders of record at June 15, to
be distributed on June 30. The market price of the stock at June 1 was $42 per
share. (The 2,000 shares remaining in the treasury do not participate in the
stock dividend.)


June 30 Distributed the stock dividend declared on June 1.


Aug. 4 Reissued 600 of the 2,000 remaining shares of treasury stock at a price of $37
per share.


Dec. 31 The Income Summary account, showing net income of the year 1,928,000,
was closed into the Retained Earnings account.

Dec. 31 The $382,000 balance in the Dividends account was closed into the Retained
Earnings account.


  1. Prepare in general journal form the entries to record these transactions.

  2. Prepare the stockholders' equity section of the balance sheet at December 31, 2018. Include a supporting schedule showing your computation.
    of retained earnings at that date.
    Instructions
    c. Compute the maximum cash dividend per share that legally could be declared at December
    31, 2018, without impairing the paid-in capital of Thompson Service. (Hint: The availability
    of retained earnings for dividends is restricted by the cost of treasury stock owned.)

 

 

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Expert Answer

Step 1
  1. Prepare journal entry for the given transactions (from January 3 to May 9).
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Account Title and Explanation Debit(S)Credit(S) Date January 3 Dividends 382,000 Dividends Payable 382,000 (To record declaration of cash dividends of $1 per share on 382000 shares) February Dividends Payable 15 382,000 382,000 Cash (To record payments of dividends) April 12 Treasury Stocks 240,000 240,000 Cash (To record purchases of 6,000 shares at $40 per share May 9 Cash 176,000 (4,000 shares x $44 per share) 160,000 Treasury stocks (4,000 shares x $40 per share) Additional paid-in capital- treasury (4,000 sharesx $4 per share) 16,000 stock To record reissue of 4,000 shares at 44per share)

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Step 2

Prepare journal entry for the given transactions (from June 1 to December 31).

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Retained Eamings (380,000 $42 x5%6) June 1 798,000 Stock Dividend to be Distributed 19,000 Additional paid in capital-stock dividends 779,000 (To record the declaration of 59% stock dividends) June 30 Stock Dividend to be Distributed 19,300 Common Stock 19,300 (To record the distribution of dividend shares) August 4 Cash (600 shares x $37 per share 22,200 Additional Paid-in capital- Treasury stocks 1.800 Treasury Stocks 24,000 (To record reissue of 600 shares at 37 per share 1.928,000 December Income Summary 31 Retained Eamings 1.928.000 To close summary income account to retained earnings) Retained Eamings December 382,000 31 Dividends 382,000 To close dividends account to retained eantings

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Step 3

2. Prepare the stockholders’ equity section of the ...

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Incorporation T Balance sheet (Partial) At December 31, 2018 Stockholders' Equity: Amount(S) Amount (S) Capital stock: S1 par value ,500,000 shares authorized 401,000 shares issued and outstanding 401,000 Additional paid-in capital: Issuance of Capital Stock 4,202,000 Stock Dividend 779,000 14,200 4,995,200 Treasury stocks Total paid-in capital 5.396,200 3.452,600 Retained Earmings 8,848,800 56,000 Less: Treasury stock (1,400 shares x $40 per share) 8,792,800 Total stockholders' Equity Computation of retained Earnings at December 31, 2018 Retained eamings at the beginning of 2018 2,704,600 1,928,000 Add: Net Income 4,632,600 382,000 Less: Cash Dividend Stock dividend to be distributed 798,000 1,180.000 3.452,600 Retained Earnings at December 31, 2018

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