Explanation 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. Stock Splits: It is a method of increasing the total number of outstanding shares thereby, reducing the market price of each share, however, keeping the corporation’s total market value constant. Effect of each transaction on the total stockholders’ equity is briefly explained below: Declaration of cash dividend increases dividend. Dividend is a contra stockholder equity account, since dividend is paid out of retained earnings . Thus, an increase in dividend decreases the stockholder equity account. Payment of cash dividend decreases the dividend payable account and cash account. Dividend payable is a liability and cash is an asset account. Hence, payment of cash dividend does not affect stockholders’ equity. Effect of 5% stock dividend are as follows: Assets = Liabilities+Stockholders' Equity Assets = Liabilities +Stockholders' Equity $ 0 = $ 0 + ( − retained earnings + common stock + paid-in capital in excess of par ) $ 0 = $ 0 + ( – ( Total number of shares × 5 % dividend × Market value per share ) + ( Total number of shares × 5 % dividend × Par value per share ) + ( Total number of shares × 5 % dividend × ( Market value per share − Par value per share ) ) ) $ 0 = $ 0 + ( – ( 68 million shares × 5 % × $ 13.87 ) + ( 68 million shares × 5% × $ 1.00 ) + ( 68 million shares × 5% × ( $ 13.87 − $ 1.00 ) ) ) $ 0 = $ 0 + ( – $47 .158 million + $3 .4 million + $43

Financial Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (12th Edition)

12th Edition

ISBN: 9780134833156

Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.

Publisher: PEARSON

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Chapter 10, Problem 10.34AE

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To indicate: The effect of each transaction on the total stockholders’ equity of Corporation N.

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Chapter 10, Problem 10.33AE

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Financial Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (12th Edition)

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To indicate: The effect of each transaction on the total stockholders’ equity of Corporation N.

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To indicate: The effect of each transaction on the total stockholders’ equity of Corporation N.

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