(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2017, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2017, Mask sold 500 shares of the treasury stock for $20 per share.In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was $21 per share.On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.Instructions(a) How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet at December 31, 2017? (b) How should Mask account for the stock dividend, and how would it affect the stockholders’ equity at December 31, 2017? Why? (c) How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2017? Why?
(Stock Dividend, Cash Dividend, and
In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was $21 per share.
On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.
Instructions
(a) How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the
(b) How should Mask account for the stock dividend, and how would it affect the
(c) How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2017? Why?
a. The treatment for the purchase and sale of the treasury stock will be done as follow:
Formulation:
In the BS (Balance Sheet) there will be a deduction of $9,000 in treasury stock out of the total contributed capital and the retained earnings. Also, the additional capital from treasury stock will be increased by $1,000.
b. The stock Dividend will be accounted as follow:
Formulation:
Since the funds are re-allocated, the shareholders’ equity will not impact the BS (Balance Sheet). But the Retained Earnings (RE) will be reduced by $40,950 and there will be an increase of $19,500 in common stock and $21,450 in paid-in-capital.
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