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Entries for selected corporate transactions Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows: 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 the certificates for the 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. 3. Prepare a retained earnings statement for the year ended December 31, 20Y5. 4. Prepare the Stockholders’ Equity section of the December 31, 20Y5, balance sheet using Method 1 of Exhibit 8.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 4PA
Textbook Problem
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Entries for selected corporate transactions

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows:

Chapter 13, Problem 4PA, Entries for selected corporate transactions Morrow Enterprises Inc. manufactures bathroom fixtures.

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 the certificates for the 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. 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. 2. Journalize the entries to record the transactions and post to the eight selected accounts.
  3. 3. Prepare a retained earnings statement for the year ended December 31, 20Y5.
  4. 4. Prepare the Stockholders’ Equity section of the December 31, 20Y5, balance sheet using Method 1 of Exhibit 8.

(1) and (2)

To determine

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 ME.

DateAccount Titles and ExplanationDebit ($)Credit ($)
20Y   
January 22Cash Dividends Payable                              28,000 
       Cash28,000
(To record the payment of cash dividends)
 
April10Cash (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)  
 
June 6Cash (25,000 shares × $26 per share)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)  
 
July5Stock Dividends                                       (4)450,000 
  

    Common Stock Dividends Distributable                           

                                                                  (5)

 360,000
  

    Paid-in Capital in excess of Stated

    Value-Common stock                          (6)

 90,000
  (To record the declaration of stock dividends)  
 
August15Common Stock Dividends Distributable (5)                                360,000 
      Common Stock 360,000
  (To record the distribution of stock dividends)  
 
November23Treasury stock (30,000 shares×$19 per share)570,000 
        Cash 570,000
  (To record the purchase of 30,000 shares of treasury stock)  
 
December28Cash Dividends                                        (8)                                                        43,800 
       Cash Dividends Payable 43,800
  (To record the declaration of cash dividends)  
 
December31Retained Earnings493,800 
       Stock dividends                                  (4) 450,000
       Cash Dividends                                   (8)                                                         43,800
  (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.

Treasury stock cost per share=[Total value of treasury stockat hand as on January 1, 20Y6][Number of treasury stockat hand as on January 1, 20Y6]=$450,00025,000 shares=$18

(2)

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

Number of shares outstandingafter the sale of treasury stockon June 6}=[Number of shares outstandingas of January 1, 20Y6 + Numberof treasury shares issued on June 6]=375,000 shares +75,000 shares=450,000 shares

(3)

Compute the stock dividends shares.

Stock dividends shares = {Number of shares outstanding afterthe sale of treasury stock on June 6×Stock dividend percentage}= 450,000 shares (2)× 4%= 18,000 shares                          

(4)

Compute the stock dividends amount payable to common stockholders

(3)

To determine

Prepare a retained earnings statement for the year ended December 31, 20Y6.

(4)

To determine

Prepare the stockholders’ equity section of the December 31, 20Y6, balance sheet.

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