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Entries for selected corporate transact ions Selected transactions completed by Primo Discount Corporation during the current fiscal year are as follows: Jan. 9. Split the common stock 3 for 1 and reduced the par from $75 to $25 per share. After the split, there were 1,200,000 common shares outstanding. Feb. 28. Purchased 40,000 shares of the corporation’s own common stock a t $28, recording the stock at cost. May 1. Declared semiannual dividends of $0.80 on 75,000 shares of preferred stock and $0.12 on the common stock to stockholders of record on June 1, payable on July 10. July 10. Paid the cash dividends. Sept. 7. Sold 30,000 shares of treasury stock at $34, receiving cash. Oct. 1. Declared semiannual dividends of $0.80 on the preferred stock and $0.12 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $36. Dec. 1. Paid the cash dividends and issued the certificates for the common stock dividend. Instructions Journalize the transactions.

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

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Section
BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
Chapter 13, Problem 13.5APR
Textbook Problem
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Entries for selected corporate transact ions

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

Jan. 9. Split the common stock 3 for 1 and reduced the par from $75 to $25 per share. After the split, there were 1,200,000 common shares outstanding.

Feb. 28. Purchased 40,000 shares of the corporation’s own common stock a t $28, recording the stock at cost.

May 1. Declared semiannual dividends of $0.80 on 75,000 shares of preferred stock and $0.12 on the common stock to stockholders of record on June 1, payable on July 10.

July 10. Paid the cash dividends.

Sept. 7. Sold 30,000 shares of treasury stock at $34, receiving cash.

Oct. 1. Declared semiannual dividends of $0.80 on the preferred stock and $0.12 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $36.

Dec. 1. 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 of Solution

Journalize the transactions for Corporation P.

Date Account Titles and Explanation Debit ($) Credit ($)
January 9 No entry is required
February 28 Treasury stock (40,000 shares×$28 per share) 1,120,000
      Cash 1,120,000
(To record the purchase of 40,000 shares of treasury stock)
May 1 Cash Dividends                                        (2) 199,200
     Cash Dividends Payable 199,200
(To record the payment of cash dividends)
July 10 Cash Dividends Payable                          (2) 199,200
     Cash 199,200
(To record the payment of cash dividends)
September 7 Cash (30,000 shares × $34 per share) 1,020,000

     Treasury stock          

(80,000 shares × $28 per share)

840,000

     Paid-in capital from treasury stock

($1,020,000$840,000)

180,000
(To record sale of treasury stock for above the cost price)
October 1 Cash Dividends                                        (4) 202,800
     Cash Dividends Payable 202,800
(To record the declaration of cash dividends)
October 1 Stock Dividends                                       (6) 856,800

    Common Stock Dividends Distributable                           

(7)

595,000

    Paid-in Capital in excess of Stated 

    Value-Common stock                          (8)

261,800
(To record the declaration of stock dividends)
December 1 Cash Dividends                                        (4) 202,800
     Cash Dividends Payable 202,800
(To record the payment of cash dividends)
December 1 Common Stock Dividends Distributable (7) 595,000
    Common Stock 595,000
(To record the distribution of stock dividends)

Working note:

Compute number of common shares outstanding after the purchase of treasury stock on February 28.

Number of shares outstandingafter the purchase of treasury stockon February 28}=[Number of shares outstandingas of January 9  Numberof treasury shares purchasedon February 28]=1,200,000 shares 40,000 shares=1,160,000 shares (1)

Compute the amount of total cash dividends declared on May 1.

Amount of total cash dividendsdeclared on May 1} =[Cash divided for preferrence shares +Cash divided for common shares +]=[(Number of preferrence shares×$0

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Chapter 13 Solutions

Accounting (Text Only)
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