Financial accounting
Financial accounting
3rd Edition
ISBN: 9780077506902
Author: David J Spieceland Wayne Thomas Don Herrmann
Publisher: Mcgraw-Hill
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Chapter 10, Problem 10.6AP

1.

To determine

To record: The each transaction.

1.

Expert Solution
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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.

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

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.

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.

Prepare the journal entry to record each of the transactions as follows:

Date Account Title and Explanation Debit ($) Credit($)
2015
January 2 Cash (110,000×$70) 7,700,000
Common stock (110,000×$1) 110,000
Additional paid in capital (difference) 7,590,000
(To record issuance of 110,000 shares of common stock for $70 per share)
February 14 Cash (60,000×$12) 720,000
Preferred stock (60,000×$10) 600,000
Additional paid in capital (difference) 120,000
(To record issuance of 60,000 shares of preferred stock for $70 per share)
May 8 Treasury stock (11,000×$60) 660,000
Cash 660,000
(To record the purchase of 11,000 shares of treasury stock)
May 31 Cash (5,500×$65) 357,500
Treasury stock (5,500×$60) 330,000
Additional paid in capital(difference) 27,500
(To record the reissue of treasury stock above the cost)
December 1 Dividends (104,500(1)×$0.25)+$36,000 62,125
Dividends Payable 62,125
(To record the declaration of cash dividend)
December 31 Dividends Payable 62,125
Cash 62,125
(To record the payment of cash dividend)

Table (1)

Working note:

Compute the number of common share outstanding as of December 1:

Details Number of shares
Common shares issued 110,000
Less: Number of common shares repurchased -11,000
Add: Number of shares of treasury stock reissued 5,500
Number of shares outstanding as of December 1 104,500(1)

Table (2)

2.

To determine

To prepare: The stockholders’ equity section of the balance sheet as of December 31, 2015.

2.

Expert Solution
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Explanation of Solution

Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance stockholders’ equity as on reported date at the end of the financial year.

Prepare the stockholders’ equity section of the balance sheet as of December 31, 2015 as follows:

ML Apparel
Balance Sheet (Stockholders’ Equity Section)
Paid-in Capital Amount ($) Amount ($)
Paid in capital:

Preferred stock, $10 par value,

60,000 shares issued

600,000
Common stock, $1 par value, 110,000 shares issued 110,000
Additional paid-in capital:
Paid-in capital – excess over par value, common stock 7,590,000
Paid-in capital – excess over par value, preferred stock 120,000
Paid-in capital – excess over par value, Treasury stock 27,500
Total paid-in capital 8,447,500
Retained earnings 427,875(2)
Treasury stock, 5,500 shares (330,000) (3)
Total stockholders’ equity 8,545,375

Working note:

Compute the amount of retained earnings as follows:

Retained earnings =Net incomeDividend paid=$490,000$62,125=$427,875 (2)

Compute the value of treasury stock held by ML Apparel as of December 31 as follows:

Value of treasury stockheld by ML Apparel}=[Number of treasury stock held as ofDecember 31×Purchase price of treasury stock]=[(Number of treasury stock purchased on May 8Number of treasury stock issued on May 31)×Purchase price of treasury stock]=[(11,000 shares5,500 shares)×$60 per share]=$330,000 (3)

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Chapter 10 Solutions

Financial accounting

Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - How is the accounting for a repurchase of a...Ch. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - 18.What happens to the par value, the shares...Ch. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 10.1BECh. 10 - Prob. 10.2BECh. 10 - Record issuance of common stock (LO102) Western...Ch. 10 - Prob. 10.4BECh. 10 - Prob. 10.5BECh. 10 - Recognize preferred stock features (LO103) Match...Ch. 10 - Prob. 10.7BECh. 10 - Prob. 10.8BECh. 10 - Prob. 10.9BECh. 10 - Record cash dividends (LO105) Divine Apparel has...Ch. 10 - Prob. 10.11BECh. 10 - Prob. 10.12BECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prepare the stockholders equity section (LO107)...Ch. 10 - Prob. 10.15BECh. 10 - Prob. 10.1ECh. 10 - Prob. 10.2ECh. 10 - Prob. 10.3ECh. 10 - Prob. 10.4ECh. 10 - Record common stock, preferred stock, and dividend...Ch. 10 - Prob. 10.6ECh. 10 - Prob. 10.7ECh. 10 - Record cash dividends (LO105) On March 15,...Ch. 10 - Prob. 10.9ECh. 10 - Record stock dividends and stock splits (LO106) On...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.12ECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Prob. 10.16ECh. 10 - Prob. 10.1APCh. 10 - Prob. 10.2APCh. 10 - Indicate effect of stock dividends and stock...Ch. 10 - Prob. 10.4APCh. 10 - Prob. 10.5APCh. 10 - Prob. 10.6APCh. 10 - Prob. 10.7APCh. 10 - Match terms with their definitions (LO101 to 108)...Ch. 10 - Prob. 10.2BPCh. 10 - Prob. 10.3BPCh. 10 - Prob. 10.4BPCh. 10 - Prob. 10.5BPCh. 10 - Prob. 10.6BPCh. 10 - Prob. 10.7BPCh. 10 - Prob. 10.1APCPCh. 10 - Prob. 10.2APFACh. 10 - Prob. 10.3APFACh. 10 - Prob. 10.4APCACh. 10 - Ethics Put yourself in the shoes of a company...Ch. 10 - Written Communication Preferred stock has...Ch. 10 - Prob. 10.8APEM
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