Concept explainers
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 theretained earnings account. - 3. Prepare a statement of stockholders’ equity for the year ended December 31, 20Y1. Assume that net income was $775,000 for the year ended December 31, 20Y6.
- 4. Prepare the “Stockholders’ Equity” section of the December 31, 20Y1, balance sheet.
(1) and (2)
Journalize the transactions and post to the eight selected accounts.
Explanation of Solution
Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.
Treasury Stock: It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.
Par value: It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.
Stated value: It refers to an amount per share, which is assigned by the board of directors to no par value stock.
Issue of common stock for non-cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non-cash assets such as land, buildings, or equipment.
Record the transactions for Incorporation NE.
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
20Y1 | ||||
January | 15 | Cash Dividends Payable | 34,320 | |
Cash | 34,320 | |||
(To record the payment of cash dividends) | ||||
March | 15 | Cash | 324,000 | |
Treasury stock | 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 (4) | 184,500 | |
Common Stock Dividends Distributable (5) | 123,000 | |||
Paid-in Capital in excess of Stated Value-Common stock (6) | 61,500 | |||
(To record the declaration of stock dividends) | ||||
July | 16 | Common Stock Dividends Distributable (5) | 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 (8) | 63,568 | |
Cash Dividends Payable | 63,568 | |||
(To record the declaration of cash dividends) | ||||
December | 31 | Retained Earnings | 248,068 | |
Stock dividends (4) | 184,500 | |||
Cash Dividends (8) | 63,568 | |||
(To record the closing of stock dividends and cash dividends to retained earnings account) |
Table (1)
Working note:
(1)
Calculate treasury stock cost per share.
(2)
Compute number of shares outstanding after the issuance of common stock on April 13.
(3)
Compute the stock dividends shares.
(4)
Compute the stock dividends amount payable to common stockholders.
(5)
Compute common stock dividends distributable value.
(6)
Compute paid-in capital in excess of par value-common stock.
(7)
Compute number of shares outstanding as on December 30.
(8)
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)
Prepare a statement of stockholders’ equity for the year ended December 31, 20Y1.
Explanation of Solution
Stockholders’ equity statement:
Stockholders’ equity statement shows the events and transaction that cause changes in the stockholders’ equity account during the accounting period. Stockholders’ equity statement starts with the beginning balances, shows the changes that occurred during the accounting year and end with the ending balances of the components of the stockholders’ equity account.
Prepare a statement of stockholders’ equity for the year ended December 31, 20Y1.
Table (10)
4.
Prepare the stockholders’ equity section of the December 31, 20Y1, balance sheet.
Explanation of Solution
Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance of each stockholder’s equity account as on reported date at the end of the financial year.
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)
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Chapter 12 Solutions
Financial And Managerial Accounting
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