Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
bartleby

Concept explainers

bartleby

Videos

Question
Chapter 11, Problem 9E

Requirement – 1

To determine

To indicate: The effect of each of the given transaction on total assets, liabilities and stockholder’s equity.

Requirement – 1

Expert Solution
Check Mark

Explanation of Solution

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholder's Equity

Accounting effect of given transactions are as follows:

Event Assets = Liabilities + Stockholder’s equity
a. Decrease () = No effect + Decrease ()
b. No effect = Increase (+) + Decrease ()
c. Decrease () = Decrease () + No effect
d. Increase (+) = No effect + Increase (+)
e. No effect = No effect + Increase (+) and Decrease ()

Table (1)

Requirement – 2

To determine

To prepare: The journal entries for the given transactions.

Requirement – 2

Expert Solution
Check Mark

Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Journal entries of Company M for the given transaction are as follows:

a. Treasury stock purchased:

Date Accounts title and explanation Ref. Debit ($) Credit ($)
  Treasury stock (-x SE)   350,000  
  Cash (-A)     350,000
  (To record purchase of treasury stock)      

Table (2)

  • Treasury stock is a contra common stock account and it decreased the value of common stock by $350,000. Hence, debit the treasury stock for $350,000.
  • Cash is an assets account and it decreased the value of asset by $350,000. Hence, credit the cash account for $350,000.

b. Declared cash dividends:

Date Accounts title and explanation Ref. Debit ($) Credit ($)
  Dividends (-SE)   260,000  
  Dividends payable (+L)     260,000
  (To record dividend declared by the board of directors)      

Table (3)

  • Dividends are the expenses account and it decreased the value of stockholder’s equity by $260,000. Hence, debit the dividends account for$260,000.
  • Dividends payable is a liability account and it increased the value of liability by $260,000. Hence, credit the dividends payable for $260,000.

c. Paid dividends to stockholders:

Date Accounts title and explanation Ref. Debit ($) Credit ($)
  Dividends payable (+L)   260,000  
  Cash (-A)     260,000
  (To record cash dividend paid to stockholder’s)      

Table (4)

  • Dividends payable is a liability account and it decreased the value of liability by $260,000. Hence, debit the dividends payable for $260,000.
  • Cash is an assets account and it decreased the value of asset by $260,000. Hence, credit the cash account for $260,000.

d. Issued 100,000 additional shares at $2 per share:

Date Accounts title and explanation Ref. Debit ($) Credit ($)
  Cash (+A)   200,000  
  Common stock (+SE) (1)     10,000
  Additional paid up capital (+SE)(2)     190,000
  (To record issuance of additional stock)      

Table (5)

  • Cash is an assets account and it increased the value of asset by $200,000. Hence, debit the cash account for $200,000.
  • Common stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $10,000, Hence, credit the common stock for $10,000.
  • Additional paid up capital is a component of stockholder’s equity and it increased the value of stockholder’s equity by $190,000. Hence, credit the additional paid up for $190,000.

Working note:

Calculate the value of common stock at par value

Common stock =Number of share issued ×Par value of per share=100,000 share×$0.10=$10,000 (1)

Calculate the value of additional capital at $50.

Common stock =Number of share issued ×(Price per sharePar value per value)=100,000 share×($2$0.10)=100,000 share×$1.90=$190,000 (2)

e. Dividends amount transfer to the retained earnings (closing entry):

Date Accounts title and explanation Ref. Debit ($) Credit ($)
  Retained earnings (-SE)   260,000  
  Dividends (-SE)     260,000
  (To record closing entry for dividends)      

Table (6)

In this closing entry, dividends account is closed by transferring the amount of dividends to the retained earnings in order to bring all the expense accounts balance to zero. Hence, debit the retained earnings for $260,000, and credit the dividends account for $260,000.

Requirement – 3

To determine

To prepare: The stockholder’s equity section of the balance sheet.

Requirement – 3

Expert Solution
Check Mark

Explanation of Solution

Stockholders’ Equity Section:

It is refers to the section of the balance sheet that shows the available balance of stockholders’ equity as on reported date at the end of the financial year.

The stockholder’s equity section of Company M is as follows:

Company M
 Statement of stockholder's equity
 Particulars  Common stock  Additional paid in capital  Retained earnings  Treasury stock
 Beginning 12,500 190,000 150,000 -
 Stock issuances 10,000 190,000 - 350,000
 Net income - - 270,000 -
 Dividends - - (260,000) -
 Ending 22,500 380,000 160,000 350,000

Table (7)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 11 Solutions

Fundamentals Of Financial Accounting

Ch. 11 - What are the two financial requirements to support...Ch. 11 - What is the difference between cumulative and...Ch. 11 - What is a stock dividend? How does a stock...Ch. 11 - What are the primary reasons for issuing a stock...Ch. 11 - Your company has been very profitable and expects...Ch. 11 - Identify and explain four important dates with...Ch. 11 - Prob. 17QCh. 11 - How do stock repurchases affect the EPS and ROE...Ch. 11 - What is one interpretation of a high P/E ratio?Ch. 11 - Prob. 20QCh. 11 - Which feature is not applicable to common stock...Ch. 11 - Which statement regarding treasury stock is false?...Ch. 11 - Which of the following statements about stock...Ch. 11 - Which of the following is ordered from the largest...Ch. 11 - Prob. 5MCCh. 11 - A journal entry is not recorded on what date? a....Ch. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - Equity versus Debt Financing Indicate whether each...Ch. 11 - Computing the Number of Issued Shares Face 2 Face...Ch. 11 - Computing the Number of Unissued Shares The...Ch. 11 - Analyzing and Recording the Issuance of Common...Ch. 11 - Analyzing and Recording the Issuance of No-Par...Ch. 11 - Determining the Effects of Stock Issuance and...Ch. 11 - Determining the Amount of a Dividend Netpass...Ch. 11 - Recording Dividends On May 20, the board of...Ch. 11 - Determining the Impact of a Stock Dividend Sturdy...Ch. 11 - Determining the Impact of a Stock Split Complete...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Determining the Amount of a Preferred Dividend...Ch. 11 - Calculating and Interpreting Earnings per Share...Ch. 11 - Inferring Financial Information Using the P/E...Ch. 11 - (Supplement 11A) Comparing Owner's Equity to...Ch. 11 - (Supplement 11B) Recording a Stock Dividend To...Ch. 11 - Computing Shares Outstanding The 2016 annual...Ch. 11 - Reporting Stockholders' Equity and Determining...Ch. 11 - Preparing the Stockholders' Equity Section of the...Ch. 11 - Reporting the Stockholders' Equity Section of the...Ch. 11 - Determining the Effects of the Issuance of Common...Ch. 11 - Recording and Reporting Stockholders' Equity...Ch. 11 - Finding Amounts Missing from the Stockholders'...Ch. 11 - Recording Treasury Stock Transactions and...Ch. 11 - Prob. 9ECh. 11 - Computing Dividends on Preferred Stock and...Ch. 11 - Recording Dividends and Preparing a Statement of...Ch. 11 - Analyzing Stock Dividends On December 31, the...Ch. 11 - Prob. 13ECh. 11 - Comparing 100 percent Stock Dividend and 2-for-1...Ch. 11 - Journalizing Cash Dividends Bogscraft Company has...Ch. 11 - Preparing a Statement of Retained Earnings and...Ch. 11 - Determining the Effect of a Stock Repurchase on...Ch. 11 - (Supplement 11 A) Comparing Stockholders' Equity...Ch. 11 - Prob. 19ECh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Stock Dividends Activision Blizzard,...Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Prob. 4CPCh. 11 - Prob. 5CPCh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Recording Cash Dividends National Chocolate Corp....Ch. 11 - Finding Missing Amounts At December 31, the...Ch. 11 - Calculating Common and Preferred Cash Dividends...Ch. 11 - Prob. 5PACh. 11 - Analyzing Accounting Equation Effects, Recording...Ch. 11 - Prob. 2PBCh. 11 - Prob. 3PBCh. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Financial Reporting of Depreciation, Write-off,...Ch. 11 - Prob. 2COPCh. 11 - Prob. 1SDCCh. 11 - Prob. 2SDCCh. 11 - Prob. 4SDCCh. 11 - Prob. 5SDCCh. 11 - Critical Thinking: Making a Decision asan Investor...Ch. 11 - CC11 Accounting for Equity Financing Nicole has...
Knowledge Booster
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • Entries 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.
    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.
    Entries for selected corporate transactions Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Navo-Go Enterprises stockholders equity accounts, with balances on January 1, 20Y1, are as follows: The following selected transactions occurred during the year: 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. Assume that the closing entry for revenues and expenses has been made and post net income of 775,000 to the retained earnings account. 3. Prepare a statement of stockholders equity for the year ended December 31, 20Y1. Assume that net income was 775,000 for the year ended December 31, 20Y6. 4. Prepare the Stockholders Equity section of the December 31, 20Y1, balance sheet.
  • Chen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. Open the file STOCKEQ from the website for this book at cengagebrain.com. Enter the formulas in the appropriate cells on the worksheet. Then fill in the columns to show the effect of each of the selected transactions and events listed earlier. Enter your name in cell A1. Save the completed worksheet as STOCKEQ2. Print the worksheet. Also print your formulas. Check figure: Total stockholders equity balance at 12/31/12 (cell G21). 398,800.
    Chen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. In the space provided below, prepare the stockholders equity section of Chen Corporations balance sheet as of December 31, 2012. Use proper headings and provide full disclosure of all appropriate information. Chens corporate charter authorizes the issuance of 1,000 shares of preferred stock and 100,000 shares of common stock.
    CHALLENGE PROBLEM This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter. LeeJin Corp. started a two-year period with 200,000 shares of 2 par common stock outstanding. During the two years, LeeJin had the following capital stock transactions: (a) Declared a 10% common stock dividend. The market value of the common stock was estimated at 8 per share. (b) Declared a cash dividend of 0.20 per share on common stock. (c) Declared a 30% common stock dividend. The market value of the common stock was estimated at 9 per share. (d) Declared a cash dividend of 0.20 per share on common stock. (e) Declared a two-for-one stock split. (f) Declared a cash dividend of 0.16 per share on common stock. REQUIRED 1. Prepare general journal entries for each of the transactions. Identify each transaction by the appropriate letter. (Assume that any cash or share distributions have been completed and are a matter of record before the next transaction occurs.) 2. Compute the following: (a) Number of shares of common stock outstanding after all the transactions have been completed. (b) The par value per share of LeeJins common stock after all the transactions have been completed.
  • Chen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements.
    The 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.
    Entries for selected corporate transactions Morrow Enterprises Inc. manufactures bathroom fixtures. Morrow Enterprises stockholders equity accounts, with balances on January 1, 20Y6, are as follows: The following selected transactions occurred during the year: 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. Assume that the closing entry for revenues and expenses has been made and post net income of 1,125,000 to the retained earnings account. 3. Prepare a statement of stockholders equity for the year ended December 31, 20Y6. Assume that net income was 1,125,000 for the year ended December 31, 20Y6. 4. Prepare the Stockholders Equity section of the December 31, 20Y6, balance sheet.
  • Selected 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.
    Nutritious Pet Food Companys board of directors declares a cash dividend of $1.00 per common share on November 12. On this date, the company has issued 12,000 shares but 2,000 shares are held as treasury shares. The company pays the dividend on December 14. What is the journal entry to record the payment of the dividend?
    Nutritious Pet Food Companys board of directors declares a cash dividend of $5,000 on June 30. At that time, there are 3,000 shares of $5 par value 5% preferred stock outstanding and 7,000 shares of $1 par value common stock outstanding (none held in treasury). What is the journal entry to record the declaration of the dividend?
    Recommended textbooks for you
  • Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
    College Accounting, Chapters 1-27
    Accounting
    ISBN:9781337794756
    Author:HEINTZ, James A.
    Publisher:Cengage Learning,
    Financial Accounting
    Accounting
    ISBN:9781305088436
    Author:Carl Warren, Jim Reeve, Jonathan Duchac
    Publisher:Cengage Learning
  • Excel Applications for Accounting Principles
    Accounting
    ISBN:9781111581565
    Author:Gaylord N. Smith
    Publisher:Cengage Learning
    Century 21 Accounting General Journal
    Accounting
    ISBN:9781337680059
    Author:Gilbertson
    Publisher:Cengage
    Financial Accounting
    Accounting
    ISBN:9781337272124
    Author:Carl Warren, James M. Reeve, Jonathan Duchac
    Publisher:Cengage Learning
  • Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
    College Accounting, Chapters 1-27
    Accounting
    ISBN:9781337794756
    Author:HEINTZ, James A.
    Publisher:Cengage Learning,
    Financial Accounting
    Accounting
    ISBN:9781305088436
    Author:Carl Warren, Jim Reeve, Jonathan Duchac
    Publisher:Cengage Learning
    Excel Applications for Accounting Principles
    Accounting
    ISBN:9781111581565
    Author:Gaylord N. Smith
    Publisher:Cengage Learning
    Century 21 Accounting General Journal
    Accounting
    ISBN:9781337680059
    Author:Gilbertson
    Publisher:Cengage
    Financial Accounting
    Accounting
    ISBN:9781337272124
    Author:Carl Warren, James M. Reeve, Jonathan Duchac
    Publisher:Cengage Learning
    The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License