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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Brady Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 13, 2019, Brady purchased 1,000 shares of treasury stock for $12 per share. Brady uses the cost method to account for treasury stock. On September 14, 2019, Brady sold 500 shares of the treasury stock for $14 per share.

In October 2019, Brady declared and distributed 2,000 shares as a stock dividend from unissued shares when the market value of the common stock was $16 per share.

On December 21, 2019, Brady declared a $1 per share cash dividend, payable on January 11, 2020, to shareholders of record on December 31, 2019.

Required:

  1. 1. How should Brady account for the cash dividend, and how would it affect Brady’s balance sheet at December 31, 2019? Explain why.
  2. 2. How should Brady account for the stock dividend, and how would it affect Brady’s shareholders’ equity at December 31, 2019? Explain why.
  3. 3. How should Brady account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in Brady’s balance sheet at December 31, 2019?

1.

To determine

State the manner by which Company B account for cash dividend and also specify its effect on Company B’s balance sheet at December 31, 2019.

Explanation

Cash dividends:

The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends.

Company B should account cash dividend for the December 31, 2019 by debiting the retained earnings and crediting the cash dividend payable. The cash dividend payable for per share must be multiplied with the number of shares that are outstanding...

2.

To determine

State the manner by which Company B account for stock dividend and also specify its effect on Company B’s shareholder’s equity at December 31, 2019.

3.

To determine

State the manner by which Company B account for purchase and sale of treasury stock and also specify manner by which the treasury stock is presented in Company B’s balance sheet at December 31, 2019.

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