Concept explainers
It is that part of the company's liabilities that are used to finance the operations of the business. They are the owner of the business. It generally has two types one is common stock and other is
Journal Entries:
It is a book of original entry. It records and summarizes financial transaction of an entity in chronological manner, generally according to dual aspect of accounting.
Accounting rules regarding journal entries:
- Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
- Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.
It is the type of stock that company keeps with itself either by not issuing the shares or by buying back of shares.
1.
To prepare:
Explanation of Solution
Prepare journal entries:
Treasury stock is purchased.
Date | Account Title and | Post ref | Debit($) | Credit($) |
Jan 1 | Treasury stocks | 80,000 | ||
Cash | 80,000 | |||
(Being treasury stocks is purchased ) |
Table (1)
- Treasury stocks are equity. Since, own equity is purchased, it reduces equity. Hence, debit treasury stocks account.
- Cash is an asset. Since, cash is used to purchase treasury stock, it reduces asset. Hence credit cash account.
Declared a cash dividend payable:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jan 5 | Retained earnings | 72,000 | ||
Dividend payable | 72,000 | |||
(Being dividend is declared and it became a liability ) |
Table (2)
- Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
- Dividend payable is a liability. Since, dividend is an expense but not paid yet, it increases liability. Hence, credit dividend payable account.
Dividend paid which was declared on Jan 5.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Feb 28 | Dividend payable | 72,000 | ||
Cash | 72,000 | |||
(Being dividend is paid ) |
Table (3)
- Common stock dividend payable is a liability. Since, dividend is paid, it decreases liability. Hence, debit common stock dividend payable account.
- Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.
Some of the treasury stock reissued.
Date | Account Title and | Post ref | Debit($) | Credit($) |
July 6 | Cash | 36,000 | ||
Treasury stocks | 30,000 | |||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
(Being dividend is paid ) |
Table (4)
- Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account.
- Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account.
- Paid in capital in excess of par value, treasury stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit paid in capital in excess of par value, treasury stock.
Some of the treasury stock reissued.
Date | Account Title and | Post ref | Debit($) | Credit($) |
Aug 22 | Cash | 42,500 | ||
Paid in capital in excess of par value, treasury stock | 6,000 | |||
Retained Earnings | 1,500 | |||
Treasury stocks | 50,000 | |||
(Being dividend is paid ) |
Table (5)
- Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account.
- Paid in capital in excess of par value, treasury stock is part of a shareholder’s fund. Since, money is used, it decreases equity. Hence, debit paid in capital in excess of par value, treasury stock.
- Retained earnings are a part of equity. Since, shares is issued at below face value, it create loss and reduces equity. Hence, debit retained earnings account.
- Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account.
Declared a cash dividend payable:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Sep 5 | Retained earnings | 80,000 | ||
Dividend payable | 80,000 | |||
(Being dividend is declared and it became a liability ) |
Table (6)
- Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
- Dividend payable is a liability. Since, dividend is an expense but not paid yet, it increases liability. Hence, credit dividend payable account.
Dividend paid which was declared on Sep 5.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Oct 28 | Dividend payable | 80,000 | ||
Cash | 80,000 | |||
(Being dividend is paid ) |
Table (7)
- Common stock dividend payable is a liability. Since, dividend is paid, it decreases liability. Hence, debit common stock dividend payable account.
- Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.
Income Summary transfer to retained earnings account for closing:
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec 31 | Income Summary | 388,000 | ||
Retained Earning | 388,000 | |||
(Being net income transfer to retained earnings) |
Table (8)
- Income summary is a temporary account. Since, it is used for transferring net income summary to retained account. Hence, debit income summary account.
- Retained earnings come under stockholder’s equity. Since, retained earning has increased. Hence, credit retained earning account.
Prepare retained earnings statement.
K. Company | |
Retained Earnings Statement | |
For the year ended December 31, 2017 | |
Particulars | Amount($) |
Opening balance | 270,000 |
Net income | 388,000 |
Dividends | (152,000) |
Treasury stock | (1,500) |
Retained earnings | 504,500 |
Table (9)
Hence , retained earnings are $506,000 .
Prepare stockholder’s Equity.
K. Company | |
Stockholder’s Equity | |
For the year ended December 31, 2017 | |
Particulars | Amount($) |
Common stock-$25 par value, 50,000 shares authorized, 30,000 shares issued and outstanding | 400,000 |
Paid in capital in excess of par value, common stock | 60,000 |
Retained earnings | 504,500 |
Retained earnings | 964,500 |
Table (10)
Hence , stockholder’s equity is $964,500 .
Want to see more full solutions like this?
Chapter 11 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
- Question Content Area Which of the following entries journalizes the issuance of common stock? a.debit Fees Earned; credit Common Stock b.debit Common Stock; credit Accounts Receivable c.debit Cash; credit Common Stock d.debit Dividends; credit Casharrow_forwardInterdependence of financial statements (a) Which financial or operational data item appears on both the income statement and the statement of stockholders' equity? (a) Which item appears on both the balance sheet and the statement of retained earnings? (c) Which line item occurs on both the balance sheet and cash flow statement?arrow_forwardPrepare journal entries to record these transactions. Prepare the stockholder's equity section of the balance sheet.arrow_forward
- Assets, liabilities, and stockholders' equity are all found within which of the following financial statements? Select one: a. Income Statement. b. Balance Sheet / Statement of Financial Position. c. Statement of Shareholders' equity. d. Retained earnings statement.arrow_forwardUse the following information from XYZ Company's balance sheet to answer the next six questions: Assets a. b. c. d. a. b. 30. C. d. Cash........ Marketable Securities Accounts Receivable Inventory........ Property and Equipment. Accumulated Depreciation. Total Assets a. b. c. d. Liabilities and Stockholders' Equity Accounts Payable. Notes Payable (current). Mortgage Payable (long-term). Bonds Payable (long-term). Common Stock, $50 Par.. The average number of common stock shares outstanding during the year was 840 shares. Net earnings for the year were $6,300. 25. XYZ's current ratio is 6.0 to 1. 5.5 to 1. 26. XYZ's quick (acid-test) ratio is 4.0 to 1. 4.5 to 1. 3.5 to 1. 3.0 to 1. Paid-in Capital in Excess of Par......... Retained Earnings............ Total Liabilities, and Stockholders' Equity 4.0 to 1. 4.5 to 1. ***** 27. XYZ's earnings per share is $7.50 per share. $7.00 per share. $0.13 per share. $6,300 per share. 28. XYZ's return on assets is a. 6.9% b. 7.9% C. 14.6% d. 23.4% 29.…arrow_forwardTotal assets on a balance sheet prepared on any date mustagree with which of the following?a. The sum of total liabilities and net income as shown onthe income statement.b. The sum of total liabilities and common stock.c. The sum of total liabilities and retained earnings.d. The sum of total liabilities and common stock andretained earnings.arrow_forward
- The account Valuation Allowance for Investments in Common Stock is included on the: A. statement of retained earnings. B. balance sheet as an adjustment to stockholders' equity. C. balance sheet as an adjustment to the investment asset account. D. income statement as other revenue (expense).arrow_forwardThe statement of stockholders' equity should be prepared Group of answer choices before the income statement and after the balance sheet before the income statement and balance sheet after the income statement and balance sheet after the income statement and before the balance sheetarrow_forwardComplete a Statement of Stockholders' Equity sheet using the data provided (the steps) in the pictures.arrow_forward
- Journalize the transactions. Post to the stockholders equity accounts.arrow_forwardClassifying Balance Sheet Accounts Use the letters a to k from the balance sheet classifications provided below to indicate the usual classification for each of the 22 balance sheet items listed below. Also indicate whether an account is a contra account. If the item is not a contra account, select "N/A" as your answer.. Balance Sheet Classification a. Current assets. g. Long-term liabilities. b. Investments. h. Paid-in capital. c. Property, plant, and equipment. i. Retained earnings. d. Intangible assets. j. Accumulated other comprehensive income. e. Other assets. k. Noncontrolling interests. f. Current liabilities. Balance Sheet Item Classification Contra account 1. Accumulated depreciation. Answer Answer 2. Bonds payable (due in 10 years). Answer Answer 3. Accounts payable (trade). Answer Answer 4. Investment in stock of another company (long-term holding). Answer Answer 5. Land (in use). Answer Answer 6.…arrow_forwardPresented below are the captions of Faulk Company’s balance sheet. a. Current assets. b. Investments. c. Property, plant, and equipment. d. Intangible assets. e. Other assets. f. Current liabilities. g. Noncurrent liabilities. h. Capital stock. i. Additional paid-in capital. j. Retained earnings. Instructions Indicate by letter where each of the following items would be classified. 1. Preferred stock. 2. Goodwill. 3. Salaries and wages payable. 4. Accounts payable. 5. Buildings. 6. Equity investments (to be sold within one year). 7. Current maturity of long-term debt. 8. Premium on bonds payable. 9. Allowance for doubtful accounts. 10. Accounts receivable. 11. Cash surrender value of life insurance. 12. Notes payable (due next year). 13. Supplies. 14. Common stock. 15. Land. 16. Bond sinking fund. 17. Inventory. 18. Prepaid insurance. 19. Bonds payable. 20. Income taxes payable.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education