Chapter 11, Problem 2GLP

To determine

Journal entry:

Journal is the primary record of the business transactions in chronological (date wise) order. Journal entry contains two effects, one is debit and the other is credit, under the double entry book keeping system.

Procedure for debiting and crediting an account:

• Increase in assets account, increase in expenses account, and decrease in liabilities account should be debited.

• Decrease in assets account, increase in revenue account, and increase in liabilities account should be credited.

All transactions affect the accounting equation that is displayed below. The accounting equation should always remain in balance at the time of recording a business transaction:

Stockholders’ equity:

The amount invested in a business by its shareholder or the donated capital and earnings from operations less any dividends issued gives the stockholders’ equity. The stockholders’ equity gives the ownership claim on the total assets of a business. The amount left after satisfying the creditors, belongs to the stockholders’ claim on the assets. It also includes common stock and retained earnings.

Treasury stock:

Treasury stock is a type of stock that companies hold either by not issuing the shares or by buying back or repurchasing some shares.

To prepare: The journal entries related to cash dividends and stock dividends and calculate the number of shares outstanding, the amount of net income, and the amount of retained earnings to be capitalized as a result of stock dividend, if any.