Chapter 10, Problem 10.1APCP

1.

To determine

To record: The each transaction.

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.

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.

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.

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.

Prepare the journal entry to record each of the transactions as follows:

Date	Account Title and Explanation	Debit ($)	Credit($)
2020
July 2	Cash $\left(100,000\times \$12\right)$	1,200,000
	Common stock $\left(100,000\times \$1\right)$		100,000
	Additional paid in capital (difference)		1,100,000
	(To record issuance of 100,000 shares of common stock for $12 per share)
September 10	Treasury stock $\left(10,000\times \$15\right)$	150,000
	Cash		150,000
	(To record the purchase of 10,000 shares of treasury stock)
November 15	Cash $\left(5,000\times \$16\right)$	80,000
	Treasury stock $\left(5,000\times \$15\right)$		75,000
	Additional paid in capital(difference)		5,000
	(To record the reissue of treasury stock above the cost)
December 1	Dividends	115,000
	Dividends Payable		115,000
	(To record the declaration of cash dividend)
December 31	Dividends Payable	115,000
	Cash		115,000
	(To record the payment of cash dividend)

Table (1)

2.

To determine

To prepare: The stockholders’ equity section of the balance sheet for G Adventures as of December 31, 2020.

Explanation of Solution

Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance of each stockholder’s equity account as on reported date at the end of the financial year.

Prepare the stockholders’ equity section of the balance sheet for G Adventures as of December 31, 2020 as follows:

G Adventures
Balance sheet (Partial)
Stockholders’ Equity Section	Amount ($)	Amount ($)
Paid-in Capital:
Common stock, $1 par value, 120,000 shares issued		120,000
Additional paid-in capital:
Paid-in capital – excess over par value, common stock	1,100,000(1)
Paid-in capital – excess over par value, Treasury stock	5,000(2)	1,105,000
Total paid-in capital		1,225,000
Retained earnings		175,000(4)
Treasury stock, 5,500 shares		(75,000) (3)
Total stockholders’ equity		1,325,000

Working note:

Compute paid in capital in excess of par for common stock:

$\begin{array}{c}\text{Paid in capital in excess of par }=\left(\begin{array}{c}\text{No of shares }\times \\ \left(\text{Issued price }-\text{Par value}\right)\end{array}\right)\\ =100,000\times \left(\$12-\$1.00\right)\\ =\$1,100,000\end{array}$ (1)

Compute paid in capital in excess of par for treasury stock:

$\begin{array}{c}\text{Paid in capital in excess of par }=\left(\begin{array}{c}\text{No of shares }\times \\ \left(\text{Issued price }-\text{Par value}\right)\end{array}\right)\\ =5,000\times \left(\$15.00-\$16.00\right)\\ =\$5,000\end{array}$ (2)

Compute the par value of 5,500 treasury stock:

$\begin{array}{c}\text{ Par value }=\text{No of shares }\times \text{ Par value}\\ =5,000\times \$15.00\\ =\$75,000\end{array}$ (3)

Compute the amount of retained earnings:

$\begin{array}{c}\text{Retained earnings }=\left[\begin{array}{l}\left(\left(\begin{array}{l}\text{Beginning balance}\\ \text{ of retained earnings}\end{array}\right)+\text{Net income}\right)\\ -\text{Dividends paid}\end{array}\right]\\ =\left[\left(\$140,000+\$150,000\right)-\$115,000\right]\\ =\$290,000-\$115,000\\ =\$175,000\end{array}$ (4)