FINANCIAL & MANAGERIAL ACCW/CENGAGENOWV
FINANCIAL & MANAGERIAL ACCW/CENGAGENOWV
15th Edition
ISBN: 9781337955423
Author: WARREN, JONES
Publisher: CENGAGE L
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Chapter 12, Problem 5PB
To determine

Journalize the transactions.

Expert Solution & Answer
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Answer to Problem 5PB

Journalize the transactions for Corporation WYO.

DateAccount Titles and ExplanationDebit ($)Credit ($)
January 15No entry is required  
 
March1Cash Dividends                                        (1)                                                        81,000 
       Cash Dividends Payable 81,000
  (To record the declaration of cash dividends)  
 
July 10Cash Dividends Payable                          (1)                                                        81,000 
       Cash  81,000
  (To record the payment of cash dividends)  
 
May 31Treasury stock (60,000 shares×$32 per share)1,920,000 
        Cash 1,920,000
  (To record the purchase of 60,000 shares of treasury stock)  
     
August17Cash (40,000 shares × $38 per share)1,520,000 
  

     Treasury stock          

     (40,000 shares × $32 per share)

 1,280,000
  

     Paid-in capital from treasury stock

    ($1,520,000$1,280,000)

 240,000
  (To record sale of treasury stock for above the cost price)  
 
September1Cash Dividends                                        (3)                                                        95,200 
       Cash Dividends Payable 95,200
  (To record the declaration of cash dividends)  
 
October1Stock Dividends                                       (6)312,000 
  

    Common Stock Dividends Distributable                           

                                                                  (7)

 234,000
  

    Paid-in Capital in excess of par 

    Value-Common stock                          (8)

 78,000
  (To record the declaration of stock dividends)  
 
October31Cash Dividends Payable                         (3)                                                        95,200 
       Cash  95,200
  (To record the payment of cash dividends)  
 
October31Common Stock Dividends Distributable (7)                                234,000 
      Common Stock 234,000
  (To record the distribution of stock dividends)  

Table (1)

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.

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.

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.

Stated value: It refers to an amount per share, which is assigned by the board of directors to no par value stock.

Issue of common stock for non-cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non-cash assets such as land, buildings, or equipment.

Retained earnings statement

This is a financial statement that shows the amount of the net income retained by a company at a particular point of time for reinvestment and pays its debts and obligations. It shows the amount of retained earnings that is not paid as dividends to the shareholders.

Stockholders’ equity: It refers to the amount of capital that includes the amount of investment by the stockholders, earnings generated from the normal business operations, and less any dividends paid to the stockholders.

Working note:

Compute the amount of total cash dividends declared on March 1.

    Amount of total cash dividendsdeclared on March 1} =[Cash divided for preferrence shares +Cash divided for common shares +]=[(Number of preferrence sharesoutstanding×$0.07 per share)+(Number of common sharesoutstanding×$0.25 per share)]=[(800,000 shares×$0.07)+(1,00,000×$0.25)]=$81,000

   (1)

Compute number of common shares outstanding after the purchase and sale of treasury stock.

    Number of shares outstandingafter the purchase andsale of treasury stock}=[Number of shares outstanding as of March 1 Number of treasury shares purchased onMay 31 +Number of treasury shares soldon August 17]=800,000 shares 60,000 shares + 40,000 shares=780,000 shares

   (2)

Compute the amount of total cash dividends declared on September 1.

    Amount of total cash dividendsdeclared on September 1} =[Cash divided for preferrence shares +Cash divided for common shares +]=[(Number of preferrence shares×$0.25per share)+(Number of shares outstandingafter the purchase and sale oftreasury stock×$0.09 per share)]=[(100,000 shares×$0.25)+(780,000(2)×$0.09)]=$95,200

   (3)

Compute the stock dividends shares.

  Stock dividends shares = {Number of shares outstanding afterthe purchase and sale of treasury stock×Stock dividend percentage}= 780,000 shares (2)× 1%= 7,800 shares                          

   (5)

Compute the stock dividends amount payable to common stockholders.

  Stock dividends = Stock dividend shares × Market value per share= 7,800 shares(5) × $40= $312,000                 

   (6)

Compute common stock dividends distributable value.

  Common stock dividenddistributable value} = Stock dividend shares × Par value of stock= 7,800 shares(5)×$30= $234,000                             

   (7)

Compute paid-in capital in excess of par value-common stock.

  Paid-in capital = Stock dividends –Common stock dividend distributable value= $312,000(6) – $234,000(7)= $78,000      

   (8)

Note:

Stock split does not affect the accounting equation of assets, liabilities, or stockholders’ equity. It will affect only the number of shares outstanding and value per share. Hence, on January 15 no entry is passed.

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Chapter 12 Solutions

FINANCIAL & MANAGERIAL ACCW/CENGAGENOWV

Ch. 12 - Dividends per share Zero Calories Company has...Ch. 12 - Entries for issuing stock On January 22, Zentric...Ch. 12 - Entries for cash dividends The declaration,...Ch. 12 - Entries for stock dividends Alpine Energy...Ch. 12 - Entries for treasury stock On May 27, Hydro...Ch. 12 - Reporting stockholders equity Using the following...Ch. 12 - Statement of stockholders equity Noric Cruises...Ch. 12 - Earnings per share Financial statement data for...Ch. 12 - Dividends per share Seventy-Two Inc., a developer...Ch. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Entries for issuing no-par stock On May 15, Helena...Ch. 12 - Issuing stock for assets other than cash On...Ch. 12 - Selected stock transactions Alpha Sounds Corp., an...Ch. 12 - Issuing stock Willow Creek Nursery, with an...Ch. 12 - Issuing stock Professional Products Inc., a...Ch. 12 - Entries for cash dividends The declaration,...Ch. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Selected dividend transactions, stock split...Ch. 12 - Treasury stock transactions Mystic Lake Inc....Ch. 12 - Prob. 15ECh. 12 - Treasury stock transactions Biscayne Bay Water...Ch. 12 - Reporting paid-in capital The following accounts...Ch. 12 - Stockholders' Equity section of balance sheet The...Ch. 12 - Stockholders' Equity section of balance sheet...Ch. 12 - Retained earnings statement Sumter Pumps...Ch. 12 - Prob. 21ECh. 12 - Statement of stockholders equity The stockholders...Ch. 12 - Dividends on preferred and common stock Pecan...Ch. 12 - Stock transactions for corporate expansion On...Ch. 12 - Selected stock transactions The following selected...Ch. 12 - Entries for selected corporate transactions Morrow...Ch. 12 - Prob. 5PACh. 12 - Dividends on preferred and common stock Yosemite...Ch. 12 - Stock transaction for corporate expansion Pulsar...Ch. 12 - Selected stock transactions Diamondback Welding ...Ch. 12 - Entries for selected corporate transactions Nav-Go...Ch. 12 - Prob. 5PBCh. 12 - Selected transactions completed by Equinox...Ch. 12 - Analyze and compare Amazon.com and Wal-Mart...Ch. 12 - Analyze and compare Bank of America and Wells...Ch. 12 - Analyze Pacific Gas and Electric Company Pacific...Ch. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Ethics in Action Tommy Gunn is a division manager...Ch. 12 - Prob. 2TIFCh. 12 - Communications Motion Designs Inc. has paid...
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