A summary of the transactions affecting the stockholders’ equity of Strait Corporation during thecurrent year follows: Prior period adjustment (net of income tax benefit) . . . . . . . . . . . . . . . . . . . . . . . . $ (80,000)Issuance of common stock: 10,000 shares of $10 par valuecapital stock at $34 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,000Declaration and distribution of 5% stock dividend (6,000 shares,market price $36 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216,000)Purchased 1,000 shares of treasury stock at $35 . . . . . . . . . . . . . . . . . . . . . . . . . (35,000)Reissued 500 shares of treasury stock at a price of $36 per share . . . . . . . . . . . 18,000Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845,000Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,700)Note: Parentheses ( ) indicate a reduction in stockholders’ equity.Instructionsa. Prepare a statement of stockholders’ equity for the year. Use these column headings andbeginning balances. (Notice that all additional paid-in capital accounts are combined into asingle column.) TotalAdditional Stock-Capital Stock Paid-in Retained Treasury holders’($10 par value) Capital Earnings Stock EquityBalances,Jan. 1 $1,100,000 $1,765,000 $950,000 $ –0– $3,815,000 b. What was the overall effect on total stockholders’ equity of the 5 percent stock dividend of 6,000 shares? What was the overall effect on total stockholders’ equity of the cash divi-dends declared? Do these two events have the same impact on stockholders’ equity? Why
A summary of the transactions affecting the
current year follows:
Prior period adjustment (net of income tax benefit) . . . . . . . . . . . . . . . . . . . . . . . . $ (80,000)
Issuance of common stock: 10,000 shares of $10 par value
capital stock at $34 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,000
Declaration and distribution of 5% stock dividend (6,000 shares,
market price $36 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216,000)
Purchased 1,000 shares of
Reissued 500 shares of treasury stock at a price of $36 per share . . . . . . . . . . . 18,000
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845,000
Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,700)
Note: Parentheses ( ) indicate a reduction in stockholders’ equity.
Instructions
a. Prepare a statement of stockholders’ equity for the year. Use these column headings and
beginning balances. (Notice that all additional paid-in capital accounts are combined into a
single column.)
Total
Additional Stock-
Capital Stock Paid-in Retained Treasury holders’
($10 par value) Capital Earnings Stock Equity
Balances,
Jan. 1 $1,100,000 $1,765,000 $950,000 $ –0– $3,815,000
b. What was the overall effect on total stockholders’ equity of the 5 percent stock dividend
of 6,000 shares? What was the overall effect on total stockholders’ equity of the cash divi-
dends declared? Do these two events have the same impact on stockholders’ equity? Why
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