Chapter 13 Homework Help2.docx

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Unformatted text preview: (a) [Click the icon to view the transactions} Requirements 1. Record the transactions in Dearborn's general journal. 2. Prepare the Dearborn's stockholders' equity section of the balance sheet as of December 31, 201E. Assume that Dearborn v authorized to issue 1,000 shares of preferred stock and 400,000 shares ofcommon stock. Both preferred stock and commoI stock were issued at par. The ending balance of retained earnings as of December 31, 2015, is $1,050,000. Requirement 1. Record the transactions in Dearborn's general journal. Jan. 15: Declared a cash dividend on the 5%, $55 par noncumulative preferred stock [950 shares outstanding}. Declared a$0.30 share dividend on the 115,000 shares of$10 par value common stock outstanding. The date of record is January 31, and the payment date is February 15. Recall that the declaration date is the day that the board ofdirectors announces the intention to pay the dividend. The declaratior adividend creates a liability on that date. Dividends declared are recorded as an increase {debit} to Cash Dividends and an increa {credit} to Dividends Payable. First calculate the common dividends. Number of shares 3: Dividend rate per share = Common dividends Number of shares 1:: Dividend 3: Par value per share = Preferred dividends sso ‘ x 5‘s x as ‘ = s 4,5eo ‘ Go ahead and record the cash dividends declared on January 15. [Record debits first, then credits. Select the explanation on the ine of the journal entry table. If no entry is required, select "No entry required" on the first line of the Accounts and Explanation column and leave the remaining cells blank.) Credit Dividends PayablHrefened 41,5001l V Dividends Payalemmon 31,500 The Cash account and the liability accounts that were created on the declaration date will be reduced by the amount of the divide declared. Record the payment of the cash dividends. Credit Admu nts and Explanation Jan. 16 Cash Dividends Accounts and Explanation Feb. 15 Dividends Payable—Preferred Dividends Payabl e—Common ‘ Cash ss,oeo‘ Paid cash dividend. Jun. 10: Split common stock 2-for-1. Before the split, Dearborn had 115,000 shares of $10 par common stock outstanding. Remember that a stock split increases the number of shares issued and outstanding and decreases the par value of the stock ,,,,4: ,,, I. ll n:,,.d ,,I:1:IIJ,L.I, 1L, , .,,L, ,t L,,,,, ,,J ,.. ., ,11 L, , 1,,I, :, L, I: A ,1 ,,I' L,, ,, A stock dividend Is a distribution ofa corporation' s own stock to its stockholders. Remember that a stock dividend affects onlyt stockholders' equity accounts. There Is no impact on the asset or liability accounts because the corporation is not obligated tow, assets to the stockholders. The entry to record a stock dividend depends on the size of the dividend. Generally accepted accounting principles {6MP} distinguish between 'a small stock dividend {less than 20% to 25% of issued and outstanding stock], and ' a large stock dividend {greater than 20% to 25% of issued and outstanding stock}. Small stock dividends are accounted for at the stock's market value. Here is how the various accounts are affected: 'Stock Dividends is debited for the market value ofthe dividend shares. will reduce market price per share, making market price per share an invalid measurement of the stock dividend value. To record a large stock dividend, we must increase {debit} Stock Dividends and increase {credit} the Common Stock Dividend Itistributable account by the total par value of the new shares issued. Let's go ahead and determine this amount by completingt calculation below. Be sure to enterthe number ofcommon shares outstanding and the par value per share ofthose shares as of 30 [which is after the stock split from June 10.} Number of shares or Dividend x Par value per share = Par value 23o,ooo ‘ 2»: ads at 5 ‘ = 5 345,000 Jul. 30 Stock Dividends 345,000 ‘ Common Stock Dividend Distributable 345,000‘ Deodared a 30% stock dividend. 4mg. 15: Distributed the stock dividend. When the company distributes {issues} the dividend shares, it will debit {decrease} the Common Stock Dividend Distributable account and increase {credit} the Common Stock account for the par value of the dividend shares. Record the journal entry. Date Accounts and Explanation | Debit H Credit Aug. 15 Common Stock Dividend Distributable 345,000 Common Stock—$5 Par "v'alue 345,000‘ When acorporation reacquires its own stock it is called treasury stock. In effect, the corporation holds its own stock in its treas When treasury stock is purchased, it is recorded in a Treasury Stock account at its m; par value is not taken into consideratir The Treasury Stock account is a contra-equity account with a normal debit balance. Record the transaction. Credit ‘ 8,000 Accounts and Explanation Oct. 26 Treasury Stock—Common Cash Purchased treasury stock. selling 500 shares of treasury stock for $10 per share. If treasury stock is resold for more than cost, the difference is credited to new stockholders' equity account, Paid-In Capital from Treasury Stock Transactions. Calculate the cash Dearborn received in th transaction {=500 shares 3: $10 per share} and the original cost of the treasury shares being sold {=500 shares 3: $0 per share}. ' original cost amount will reduce {credit} the Treasury Stock account. The difference between the cash received and the cost of ti shares is credited to Raid-In Capital from Treasury Stock Transactions. Journalize the transaction. Credit ‘ 4,000 ‘ 1,000 Accounts and Explanation Nov. 8 Cash Treasury Stock—Common Paid—In Capital from Treasury Stock Transactions Sold treasury stock above post. :his account's balance is too small, Retained Earnings is debited for the remaining amount. We know from the journal entry in thi preceding step that the Raid-In Capital from Treasury Stock Transactions account currently has a credit balance of$1,000. Dearl .vill debit Cash for the amount of cash received from the sale {=300 shares x $4 per share}, debit Paid-In Capital from Treasury Si Transactions for $1,000, credit Treasury Stock—Common for the original cost ofthe shares sold {=300 shares x$8 per share}, a debit Retained Earnings for the amount to make the journal entry balance. Journalize the transaction. Credit Accounts and Explanation Nov. 30 Cash Raid-In Capital from Treasury Stock Transactions ‘ Retained Earnings ‘ Treasury Stock—Common 2,400‘ common stock were issued at par. The ending balance of retained earnings as of December 31, 2018, is $1,050,000. A corporation's owners' equity is called stockholders' equity. State laws require corporations to report their sources of owners' ca because some of the capital must be maintained by the company. The two basic sources of stockholders' equity are as follows: ' Paid-in capital [also called contributed capital} represents amounts received from the stockholders in exchange for stock. Common stock is the main source of paid-in capital. Paid-in capital is externally generated capital and results from transactio with outsiders. ' Retained earnings is equity earned by profitable operations that is not distributed to stockholders. Retained earnings is interni- generated equity because it results from corporate decisions to retain net income to use in future operations or for expansion. the preferred stock and the common stock. We know that Dearborn has 950 shares of preferred stock issued and outstanding [t given in the Jan. 18transaction data}. Let's calculate the number ofcommon stock shares issued and outstanding. Recall that treasury stock decreases the company's stock that is outstanding—held by outsiders {the stockholders}. Therefore, outstandinr, stock is issued stock less treasury stock. Shares issued and outstanding as ofJan. 15 115,000‘ Additional stock issued in 2 for 1 stock split on Jun. 10 115,000‘ Additional shares issued for 30% stock dividend declared on Jul. 30 59.999: Total common shares issued 299,000‘ Less: Treasury stock shares at December 31 {2001‘ Total common shares outstanding 298.800: Balance Sheet [Parfial] December 31. 2016 Stockholders‘ Equity Paid—In lCapital: Preferred Stock—5'59, $98 Par Value; ‘ 1,000‘shares authorized, 950‘ shares issued and outstanding Common Stock—$5 Par Value; ‘ 400,000‘shares authorized, 299,000 shares issued 298,800 shares outstanding Total Paid—In Capital Total Stockholders' Equity ‘low complete the statement. We have the information we need to calculate the ending balance of each account. For both the 3referred Stock and the Common Stock account, multiply the number of shares issued by the apppropriate par value (remember, common stock par value decreased due to the stock split]. Treasury stock is reported at cost—recall that Dearborn paid $8 per share when the stockwas purchased. [Use parentheses or a minus sign for amounts to be subtracted.) “““dsi'o'cflnirdtsshtm” Raid—In Capital: Preferred Stock—59E], $98 Par Value; 1,000 shares authorized, 950 shares issued and outstanding $ 91 ,200‘ Common Stock—$5 Par Value; 400,000 shares authorized, 299,000 shares issued 298,800 shares outstanding 1.495fim‘ Total Paid-In lCapital 1,588,200‘ Retained Earnings i,oso,ooo‘ ‘ Treasury Stock—Common; 200I shares at cost {1:500} ...
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