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

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:

DateAccount Title and ExplanationDebit($)Credit($)
2015   
February 2Cash (1,500,000×$35)52,500,000 
 Common stock (1,500,000×$5) 7,500,000
 Additional paid in capital (difference) 45,000,000
 (To record issuance of 1.5 million shares of common stock for$35 per share)  
    
February 4Cash (600,000×$23)13,800,000 
 Preferred stock (600,000×$20) 12,000,000
 Additional paid in capital (difference) 1,800,000
 (To record issuance of 600,000 shares ofpreferred stock for $23 per share)  
    
June 15Treasury stock (150,000×$30)4,500,000 
 Cash 4,500,000
 (To record the purchase of 150,000 shares of treasury stock)  
 
August 15Cash (112,500×$45)5,062,500 
 Treasury stock (112,500×$30) 3,375,000
 Additional paid in capital(difference) 1,687,500
 (To record the reissue of treasury stock above the cost)  
 
November 1Dividends (1,462,500(1)×$1.50)+$480,0002,673,750 
 Dividends Payable 2,673,750
 (To record the declaration of cash dividend)  
 
November 30Dividends Payable2,673,750 
Cash 2,673,750
 (To record the payment of cash dividend)  

Table (1)

Working note:

Compute the number of common share outstanding as of November1:

DetailsNumber of shares
Common shares issued1,500,000
Less: Number of common shares repurchased-150,000
Add: Number of shares of treasury stock reissued112,500
Number of shares outstanding as of November 11,462,500(1)

Table (2)

2.

To determine

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

2.

Expert Solution
Check Mark

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:

NL Gear
Balance sheet (Stockholders’ Equity Section)
December 31, 2015
Paid-in CapitalAmount ($)Amount ($)

Preferred stock, $20 par value,

600,000 shares issued

12,000,000 
Common stock, $5 par value, 1,500,000 shares issued7,500,000 
Additional paid-in capital:  
Paid-in capital – excess over par value,common stock45,000,000 
Paid-in capital – excess over par value,preferred stock1,800,000 
Paid-in capital – excess over par value,Treasury stock1,687,500 
Total paid-in capital 67,987,500
Retained earnings 2,226,250(2)
Less: Treasury stock, 37,500 shares (1,125,000) (3)
Total stockholders’ equity 69,088,750


Working note:

Compute the amount of retained earnings as follows:

Retained earnings =Net incomeDividend paid=$4,900,000$2,673,750=$2,226,250 (2)

Compute the value of treasury stock held by NL Gear as of November 30 as follows:

Value of treasury stockheld by NL Gear}=[Number of treasury stock held as ofNovember 30×Purchase price of treasury stock]=[(Number of treasury stock purchased on June 15Number of treasury stock issued on August 15)×Purchase price of treasury stock]=[(150,000 shares112,500 shares)×$30 per share]=$1,125,000 (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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