Chapter 13, Problem 2BPSB

To determine

Introduction:

Treasury Stocks are the stocks which are those numbers of issued stocks which are repurchased by the corporation. In other words, Treasury stock is the difference between Issued Stock and Outstanding Stock.

$\text{Treasury Stock = Issued Stock - Outstanding Stock}$

Requirement 1

To Determine:

Journal Entries for recording the given transaction

Answer to Problem 2BPSB

Solution:

Date	Particulars	Debit	Credit
Jan.1	Treasury Stock, $12 par value	480,000
	Cash		480,000
	(40,000 Common Stock repurchased at $12)
Jan.5	Retained Earnings	240,000
	Dividend Payable		240,000
	(Cash Dividend of $1.5 on each outstanding share declared)
Feb.28	Dividend Payable	240,000
	Cash		240,000
	(Cash Dividend paid)
July.6	Cash	312,000
	Additional paid-in-capital		24,000
	Treasury Stock		288,000
	(Treasury stock sold out above cost)
Aug.22	Cash	152,000
	Additional Paid-in-Capital- Treasury Stock	24,000
	Retained Earnings	16,000
	Treasury Stock		192,000
	(Treasury Stock sold out below cost)
Sep.5	Retained Earnings	500,000
	Dividend Payable		500,000
	(Cash Dividend declared)
Oct.28	Dividend Payable	500,000
	Cash		500,000
	(Cash Dividend paid)
Dec.31	Income Summary	1,072,000
	Retained Earnings		1,072,000
	(Credit balance of net income transferred to retained earnings)

Explanation of Solution

Explanations:

1. Calculation of Cash Dividend declared on Jan.5:

$\begin{array}{l}\text{Dividend to be paid = (Issued Stock - Treasury Stock)}\times \text{Dividend Rate}\\ \text{ = (200,000 - 40,000)}\times \text{\$1}\text{.5}\\ \text{ = 160,000}\times \text{\$1}\text{.5}\\ \text{ = \$240,000}\end{array}$

2. Calculation of Cash Dividend declared on Sep.5:

$\begin{array}{l}\text{Dividend to be paid = (Issued Stock - Treasury Stock)}\times \text{Dividend Rate}\\ \text{ = (200,000 - 0)}\times \text{\$2}\text{.5}\\ \text{ = 200,000}\times \text{\$2}\text{.5}\\ \text{ = \$500,000}\end{array}$

To determine

Requirement 2:

To Calculate:

Ending Balance of Retained Earnings

Answer to Problem 2BPSB

Solution:

Balthus Corporation

Statement of Retained Earnings

For the year ended 31^st Dec. 2017

Particulars	Amount ($)
Retained Earnings on December 31, 2016	2,160,000
Net Income for the year ended Dec.31, 2017	1,072,000
Dividend paid to Shareholders	(740,000)
Treasury Stock reissuances	(16,000)
Retained Earnings at Dec.31, 2017	2,476,000

Explanation of Solution

Explanations:

The statement of retained earnings shows the changes in retained earnings during an accounting year. It generally starts with an opening balance of retained earnings and then different items of income and expenses are added and subtracted to arrive at the closing balance of retained earnings for the said accounting year. This can be calculated as follows:

$\text{Opening Retained Earnings + Net Income - Dividends = Ending Retained Earnings}$

To determine

Requirement 3:

To Calculate:

Stockholders’ Equity for the year 2017

Answer to Problem 2BPSB

Solution:

Total Stockholders’ Equity at the year-end is $4,076,000

Explanation of Solution

Explanations:

Common stock- $10 par value, 100,000 shares authorized
40,000 shares issued and outstanding	$200,000
Paid-in-Capital in excess of par value, common stock	1,400,000
Retained Earnings	2,476,000
Total Stockholders’ Equity	4,076,000

Conclusion

Total Stockholders’ Equity at the year-end is $4,076,000