Chapter 18, Problem 18.6P

(1)

To determine

Shareholders’ Equity Transactions

Stockholders’ equity:

The claims of owners on a company’s resources, after the liabilities are paid off, are referred to as stockholders’ equity. Therefore, stockholders’ equity is sometimes referred to as net worth of owners or shareholders or stockholders.

To journalize: The events and transactions that affect the shareholders’ equity of Corporation AI during 2016, 2017, and 2018.

Explanation of Solution

Journalize the transactions related to shareholders’ equity for the period 2016through2018 for Incorporation AI.

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Cash		480,000,000
		Preferred Stock $\left(\begin{array}{l}\text{1 million shares}\times \\ \text{\$10 par per share}\end{array}\right)$			10,000,000
		Paid-in Capital–Excess of Par, Preferred			470,000,000
		(To record issue of preferred shares)

Table (1)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Cash		70,000,000
		Common Stock  $\left(\begin{array}{l}\text{7 million shares}\times \\ \text{\$1 par per share}\end{array}\right)$			7,000,000
		Paid-in Capital–Excess of Par,        Common			63,000,000
		(To record issue of common stock)

Table (2)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Retained Earnings		1,000,000
		Cash Dividends Payable, Preferred			1,000,000
		(To record declaration of cash dividends)

Table (3)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016
		Cash Dividends Payable, Preferred		1,000,000
		Cash			1,000,000
		(To record distribution of cash dividends)

Table (4)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Retained Earnings		16,000,000
		Cash Dividends Payable, Common			16,000,000
		(To record declaration of cash dividends)

Table (5)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Cash Dividends Payable, Common		16,000,000
		Cash			16,000,000
		(To record distribution of cash dividends)

Table (6)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016		Income Summary		290,000,000
		Retained Earnings			290,000,000
		(To record closing of net income to income summary)

Table (7)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017		Common Stock (1)		3,000,000
		Paid-in Capital–Excess of Par (3)		27,000,000
		Retained Earnings		20,000,000
		Cash (4)			50,000,000
		(To record retirement of common stock)

Table (8)

Working Notes:

Compute common stock value.

$\begin{array}{c}\text{Common stock value= Number of shares }\times \text{ Par value per share}\\ \text{= 3,000,000 shares × \$1}\\ \text{= \$3,000,000}\end{array}$ (1)

Compute excess of par value of shares.

$\begin{array}{c}\text{Excess of par value = }\frac{\text{Total paid-in capital-excess of par value}}{\text{Total numbner of common stock}}\\ \text{=}\frac{\text{\$495,000,000+\$63,000,000}}{\text{55,000,000 shares+7,000,000 shares}}\\ \text{=\$9}\end{array}$ (2)

Compute paid-in capital in excess of par value.

$\begin{array}{c}\begin{array}{l}\text{Paid-in capital in }\\ \text{excess of par value}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Number of shares}\times \\ \text{Excess of par value per share}\end{array}\right\}\\ \text{= 3,000,000 shares}\times \text{\$9}\\ \text{= \$27,000,000}\end{array}$ (3)

Note: Refer to Equation (2) for values and computations of excess of par value per share.

Compute cash paid amount.

$\begin{array}{c}\text{Cash paid = }\left\{\begin{array}{l}\text{Common stock value + }\\ \text{Paid-in capital-excess of par value+}\\ \text{Retained earnings value}\end{array}\right\}\\ \text{=\$3,000,000+\$27,000,000+\$20,000,000}\\ \text{=\$50,000,000}\end{array}$ (4)

Note: Refer to Equations (1), and (3) for values and computations of common stock, and paid-in capital-excess of par value.

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Retained Earnings		1,000,000
		Cash Dividends Payable, Preferred			1,000,000
		(To record declaration of cash dividends)

Table (9)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Cash Dividends Payable, Preferred		1,000,000
		Cash			1,000,000
		(To record distribution of cash dividends)

Table (10)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Retained Earnings		20,000,000
		Cash Dividends Payable, Common			20,000,000
		(To record declaration of cash dividends)

Table (11)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Cash Dividends Payable, Common		20,000,000
		Cash			20,000,000
		(To record distribution of cash dividends)

Table (12)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Paid-in Capital–Excess of Par, Preferred		5,000,000
		Preferred Stock			5,000,000
		(To record distribution of stock dividend)

Table (13)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
		Income Summary		380,000,000
		Retained Earnings			380,000,000
		(To record closing of net income to income summary)

Table (14)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Retained Earnings		65,000,000
		Common Stock			6,000,000
		Paid-in Capital–Excess of Par			59,000,000
		(To record declaration of common stock dividend)

Table (15)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Retained Earnings		1,000,000
		Cash Dividends Payable, Preferred			1,000,000
		(To record declaration of cash dividends)

Table (16)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Cash Dividends Payable, Preferred		1,000,000
		Cash			1,000,000
		(To record distribution of cash dividends)

Table (17)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Retained Earnings		22,000,000
		Cash Dividends Payable, Common			22,000,000
		(To record declaration of cash dividends)

Table (18)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Cash Dividends Payable, Common		22,000,000
		Cash			22,000,000
		(To record distribution of cash dividends)

Table (19)

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2018
		Income Summary		412,000,000
		Retained Earnings			412,000,000
		(To record closing of net income to income summary)

Table (20)

(2)

To determine

To prepare: Stockholders’ equity section of balance sheet for Incorporation IA at December 31, 2018 and 2017.

Explanation of Solution

Prepare Stockholders’ equity section of balance sheet for Incorporation IA at December 31, 2018 and 2017.

Incorporation IA
Partial balance sheet (Stockholders’ Equity Section)
December 31, 2018 and 2017
	2018	2017
Paid-in Capital	Amount ($)	Amount ($)
Preferred stock	$15,000,000	$15,000,000
Common stock	65,000,000	59,000,000
Additional paid-in capital	1,055,000,000	996,000,000
Total paid-in capital	1,135,000,000	1,070,000,000
Retained earnings	2,814,000,000	2,490,000,000
Total stockholders’ equity	3,9249,000,000	3,560,000,000

Table (21)

Stockholders’ equity section: Partial balance sheet that reports the details of stockholders’ equity in detail is referred to as stockholders’ equity section of balance sheet.