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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for selected corporate transactions

Selected transactions completed by ATV Discount Corporation during the current fiscal year are as follows:

Jan. 5. Split the common stock 4 for 1 and reduced the par from $20 to $5 per share. After the split, there were 4,000,000 common shares outstanding.
Mar. 10. Purchased 100,000 shares of the corporation's own common stock at $30, recording the stock at cost.
Apr. 30. Declared semiannual dividends of $0.25 on 30,000 shares of preferred stock and $0.08 on the common stock to stockholders of record on May 15, payable on June 15-
June 15. Paid the cash dividends.
Aug. 20. Sold 60,000 shares of treasury stock at $40, receiving cash.
Oct. 15. Declared semiannual dividends of $0.25 on the preferred stock and $0.08 on the common stock (before the stock dividend). In addition, a 1% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $35. The dividend date of record is November 15 payable on December 19.
Dec. 10. Paid the cash dividends and issued the certificates for the common stock dividend.

Instructions

Journalize the transactions.

To determine

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.

Retained earnings statement

This is a financial statement that shows the amount of the net income retained by a company at a particular point of time for reinvestment and pays its debts and obligations. It shows the amount of retained earnings that is not paid as dividends to the shareholders.

Stockholders’ equity: It refers to the amount of capital that includes the amount of investment by the stockholders, earnings generated from the normal business operations, and less any dividends paid to the stockholders.

To Journalize: The transactions.

Explanation

Journalize the transactions for Corporation ATV.

Date Account Titles and Explanation Debit ($) Credit ($)
January 5 No entry is required
March 10 Treasury stock (100,000 shares×$30 per share) 3,000,000
      Cash 3,000,000
(To record the purchase of 100,000 shares of treasury stock)
April 30 Cash Dividends                                        (2) 319,500
     Cash Dividends Payable 319,500
(To record the declaration of cash dividends)
June 15 Cash Dividends Payable                          (2) 319,500
     Cash 319,500
(To record the payment of cash dividends)
August 20 Cash (60,000 shares × $40 per share) 2,400,000

     Treasury stock       

(60,000 shares×$30 per share)

1,800,000

     Paid-in capital from treasury stock

($2,400,000$1,800,000)

600,000
(To record sale of treasury stock for above the cost price)
October 15 Cash Dividends                                        (4) 324,300
     Cash Dividends Payable 324,300
(To record the declaration of cash dividends)
October 15 Stock Dividends                                       (6) 1,386,000

    Common Stock Dividends Distributable                        

(7)

198,000

    Paid-in Capital in excess of Stated

    Value-Common stock                          (8)

1,188,000
(To record the declaration of stock dividends)
December 19 Cash Dividends Payable                         (3) 324,300
     Cash 324,300
(To record the payment of cash dividends)
December 1 Common Stock Dividends Distributable (7) 198,000
    Common Stock 198,000
(To record the distribution of stock dividends)

Working note:

Compute number of common shares outstanding after the purchase of treasury stock on March 10.

Number of shares outstandingafter the purchase of treasury stockon March 10}=[Number of shares outstandingas of January 5  Numberof treasury shares purchasedon March 10]=4,000,000 shares 100,000 shares=3,900,000 shares (1)

Compute the amount of total cash dividends declared on April 30.

Amount of total cash dividendsdeclared on April 30} =[Cash divided for preferrence shares +Cash divided for common shares +]=[(Number of preferrence shares×$0

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