FIANACIAL ACCOUNTING
FIANACIAL ACCOUNTING
5th Edition
ISBN: 9781266704444
Author: SPICELAND
Publisher: MCG
Question
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Chapter 10, Problem 2PB

1.

To determine

Record the given transactions.

1.

Expert Solution
Check Mark

Answer to Problem 2PB

Record the given transactions:

DateAccount title and ExplanationPost Ref.

Debit

($)

Credit

($)

March 1, 2021Cash (3,000shares×$10)30,000
Common stock (3,000shares×$1)3,000
Additional paid-in-capital (balance)27,000
(To record the issue of common stock)
April 1, 2021Cash (175shares×$40)7,000
Preferred stock (175shares×$10)1,750
Additional paid in capital (balance)5,250
(To record the issue of preferred stock)
June 1, 2021Dividends (6,300 shares×$0.25) (1)1,575
Dividend payable1,575
(To record the declaration of cash dividend)
June 30, 2021Dividend payable (6,300 shares×$0.25)1,575
Cash1,575
(To record the payment of cash dividend)
August 1, 2021Treasury stock (175shares×$7)1,225
Cash1,225
(To record the purchase of treasury stock)
October 1, 2021Cash (125shares×$9)1,125
Treasury stock (125shares×$7)875
Additional paid in capital (125shares×$2)250
(To record the sale of treasury stock above cost)

Table (1)

Explanation of Solution

Common stock: Common stock is the cash raised by the company by issuing common or ordinary shares to the stockholders. This is an investment for the shareholders for which they receive the dividends from the issuing company, and have voting rights.

Preferred stock: Preferred stock is the cash raised by the company by issuing preferred shares. This investment fetches a preferential right for dividend for the preferred stockholders over the common stockholders.

Paid-in capital in excess of par value: This is the total of stock capital contributed by investors in excess of par value, and so, sometimes referred to as paid-in capital in excess of par value. It includes preferred stock capital issued in excess of par value, common stock capital issued in excess of par value, and capital issued by the way of sale of treasury stock.

Treasury stock: The shares which were reacquired or bought back by the company, but not formally retired from the corporation stock, are called as treasury stock. The re-acquisition of issued shares decreases the number of outstanding shares.

Explanation for the above journal entries:

Issue of common stock:

  • Cash (asset account) is increased. Thus, it is debited.
  • Common stock (component of equity) is increased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Issue of preferred stock:

  • Cash (asset account) is increased. Thus, it is debited.
  • Preferred stock (component of equity) is increased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Record the declaration of cash dividend:

  • Dividend (decreases the retained earnings) is a legal obligation. It is increased. Thus, it is debited.
  • Dividend payable (liability account) is increased. Thus, it is credited.

Record the payment of cash dividend:

  • Dividend payable (liability account) is decreased. Thus, it is debited.
  • Cash (asset account) is decreased. Thus, it is credited.

Purchase of treasury stock:

  • Treasury stock is a contra equity account. It is increased. Thus, it is debited.
  • Cash (asset account) is decreased. Thus, it is credited.

Sale of treasury stock above cash:

  • Cash (asset account) is increased. Thus, it is debited.
  • Treasury stock is a contra equity account. It is decreased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Working note:

Compute the outstanding shares as on the date of dividend declaration:

At the beginning common stock is 4,000 shares and preferred stock is 300 shares.

ParticularsShares
Shares at Beginning (125+3,000)3,125
Add: Issued common stock3,000
Add: Issue of preferred stock175
Shares outstanding on the date of dividend declaration6,300

(1)

Table (2)

2.

To determine

Indicate whether each of these transactions would increase (+), decrease (-), or have no effect (NE) on total assets, total liabilities, and total stockholders' equity.

2.

Expert Solution
Check Mark

Explanation of Solution

Indicate whether each of these transactions would increase (+), decrease (-), or have no effect (NE) on total assets, total liabilities, and total stockholders' equity:

Transaction

Total

Assets

Total Liabilities

Total

Stockholders’

Equity

Issue common stock+NE+
Issue preferred stock+NE+
Declare cash dividendsNE+-
Pay cash dividends--NE
Purchase treasury stock-NE-
Resell treasury stock+NE+

Table (2)

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Chapter 10 Solutions

FIANACIAL ACCOUNTING

Ch. 10 - Prob. 11SSQCh. 10 - Prob. 12SSQCh. 10 - Prob. 13SSQCh. 10 - Prob. 14SSQCh. 10 - Prob. 15SSQCh. 10 - Prob. 1AECh. 10 - Prob. 2AECh. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - LO10–2 9. What is par value? How is it related to...Ch. 10 - Prob. 10RQCh. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - Prob. 18RQCh. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Determine the amount of preferred stock dividends...Ch. 10 - Prob. 8BECh. 10 - Record sale of treasury stock (LO10–4) BE10–9...Ch. 10 - Record cash dividends (LO10–5) BE10–10 Divine...Ch. 10 - Prob. 11BECh. 10 - Prob. 12BECh. 10 - Prob. 13BECh. 10 - Prob. 14BECh. 10 - Calculate the return on equity (LO10–8) BE10–15...Ch. 10 - Match terms with their definitions (LO10–1) E10–1...Ch. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Determine the amount of preferred stock dividends...Ch. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Match terms with their definitions (LO10–1) P10–1A...Ch. 10 - Prob. 2PACh. 10 - Indicate effect of stock dividends and stock...Ch. 10 - Prob. 4PACh. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 1PBCh. 10 - Prob. 2PBCh. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Prob. 5PBCh. 10 - Prob. 6PBCh. 10 - Prob. 7PBCh. 10 - Prob. 1APCh. 10 - Prob. 2APCh. 10 - Prob. 3APCh. 10 - Prob. 4APCh. 10 - Prob. 5APCh. 10 - Prob. 7APCh. 10 - Prob. 8AP
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