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Total stockholders; equity, $44,436,200 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: Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) $ 7,500,000 Paid-In Capital in Excess of Stated Value—Common Stock 875,000 Retained Earnings 33,600,000 Treasury Stock (25,000 shares, at cost) 450,000 The following selected transactions occurred during the year: Jan. 22. Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000. Apr 10. Issued 75,000 shares of common stock for $24 per share. June 6. Sold all of the treasury stock for $26 per share. July 5. Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share. Aug 15. Issued shares of stock for the stock dividend declared on July 5. Nov 23. Purchased 30,000 shares of treasury stock for $19 per share. Dec. 28. Declared a $0.10 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. 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.

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Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169

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BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
Chapter 12, Problem 12.4APR
Textbook Problem
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Total stockholders; equity, $44,436,200

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:

Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) $ 7,500,000
Paid-In Capital in Excess of Stated Value—Common Stock 875,000
Retained Earnings 33,600,000
Treasury Stock (25,000 shares, at cost) 450,000

 The following selected transactions occurred during the year:

    Jan. 22.    Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000.

    Apr 10.    Issued 75,000 shares of common stock for $24 per share.

    June 6.    Sold all of the treasury stock for $26 per share.

    July 5.    Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share.

    Aug 15.    Issued shares of stock for the stock dividend declared on July 5.

    Nov 23.    Purchased 30,000 shares of treasury stock for $19 per share.

    Dec. 28.    Declared a $0.10 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. 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.

(1) and (2)

To determine

To journalize: The transactions and post to the eight selected accounts.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

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 ME.

Date Account Titles and ExplanationDebit ($)Credit ($)
20Y6
January22 Cash Dividends Payable                             28,000
Cash28,000
(To record the payment of cash dividends)
April10 Cash (75,000 shares×$24) 1,800,000
Common Stock (75,000 shares×$20) 1,500,000
Paid-in Capital in Excess of stated value     Common Stock    ($1,800,000$1,500,000) 300,000
(To record issuance of 75,000 shares in excess of stated value)
June6 Cash   (25,000 shares×$26) 650,000
Treasury stock   (25,000 shares×$18 per share (1) ) 450,000
Paid-in capital from treasury stock     ($650,000$450,000) 200,000
(To record sale of treasury stock for above the cost price of $18 per share)
July5 Stock Dividends450,000
Common Stock Dividends Distributable                           360,000
Paid-in Capital in excess of Stated Value-Common stock90,000
(To record the declaration of stock dividends)
August15 Common Stock Dividends Distributable                             360,000
Common Stock360,000
(To record the distribution of stock dividends)
November23 Treasury stock (20,000 shares×$19 per share) 570,000
Cash570,000
(To record the purchase of 30,000 shares of treasury stock)
December28 Cash Dividends                                                                              43,800
Cash Dividends Payable43,800
(To record the declaration of cash dividends)
December31 Retained Earnings493,800
Stock dividends450,000
Cash Dividends                                                     43,800
(To record the closing of stock dividends and cash dividends to retained earnings account)

Table (1)

Working note:

Calculate treasury stock cost per share.

Treasurystock=[TotalvalueoftreasurystockathandasonJanuary1,20Y6][NumberoftreasurystockathandasonJanuray1,20Y6]=$450,00025,000shares=$18 (1)

Compute number of shares outstanding after the sale of treasury stock on June 6.

NumberofsharesoutstandingafterthesaleoftreasurystockonJune6)=[NumberofsharesoutstandingasofJanuary1,20Y6+NumberoftreasurysharesissuedonJune6]=375,000shares+75,000shares=450,000shares   (2)

Compute the stock dividends shares.

Stockdividendsshares=(NumberofsharesoutstandingafterthesaleoftreasurystockonJuneStockdividendpercentage)=450,000shares(2)×4%=18,000shares                             (3)

Compute the stock dividends amount payable to common stockholders.

Stockdividends=Stockdividendshares×Marketvaluepershare=18,000shares(3)×$25=$450,000 (4)

Compute common stock dividends distributable value

(3)

To determine

To prepare: Statement of stockholders’ equity the year ended December 31, 20Y6.

(4)

To determine

To prepare: The stockholders’ equity section of the December 31, 20Y6, balance sheet.

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