Financial and Managerial Accounting
Financial and Managerial Accounting
7th Edition
ISBN: 9781259726705
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 11, Problem 2GLP
To determine

Stockholder’s Equity:

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 preferred stock.

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.

Treasury Stock:

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: Journal entry, numbers of shares outstanding, the amount of net income and the amount of retained earnings that is capitalized.

Expert Solution & Answer
Check Mark

Explanation of Solution

Prepare journal entry.

Declared and paid a cash dividend:

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Jan 5 Retained earnings 20,000
cash 20,000
(Being dividend is declared and paid )
Table (1)
  • Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
  • Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.

Declared and paid a cash dividend:

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Apr. 5 Retained earnings 18,500
cash 18,500
(Being dividend is declared and paid )
Table (2)
  • Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
  • Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.

Declared and paid a cash dividend:

Date Account Title and Explanation Post ref Debit ($) Credit ($)
July 5 Retained earnings 18,500
cash 18,500
(Being dividend is declared and paid )
Table (3)
  • Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
  • Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.

Declared and paid a stock dividend:

Date Account Title and Explanation Post ref Debit ($) Credit ($)
July 31 Retained earnings 88,800
Common stock 29,600
Paid in capital in excess of par value, treasury stock 59,200
(Being stock dividend is declared and paid )
Table (4)
  • Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
  • Common stock is equity. Since, shares is issued, it increases equity. Hence, credit common 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.

Declared and paid a cash dividend:

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Oct 5 Retained earnings 22,200
cash 22,200
(Being dividend is declared and paid )
Table (5)
  • Retained earnings are a part of equity. Since, dividend is being paid, it reduced equity. Hence debit retained earnings account
  • Cash is an asset. Since, cash is used to pay dividend, it reduces asset. Hence credit cash account.

Calculate number of outstanding shares.

Formula for number of outstanding shares,

    NumberofOutstandingShares=IssuedSharesTreasuryShares

Jan. 5

Given,
Issued shares are 40,000.
Treasury Shares are 0.

Substitute 40,000 for issue shares and 0 for treasury shares in the above formula.

    NumberofOutstandingShares=40,0000 =40,000

Hence, number of shares outstanding is 40,000.

Apr. 5

Given,
Issued shares are 40,000.
Treasury Shares are 3,000.

Substitute 40,000 for issue shares and 3,000 for treasury shares in the above formula.

    NumberofOutstandingShares=40,0003,000 =37,000

Hence, number of shares outstanding is 37,000.

July 5

Given,
Issued shares are 40,000.
Treasury Shares are 3,000.

Substitute 40,000 for issue shares and 3,000 for treasury shares in the above formula.

    NumberofOutstandingShares=40,0003,000 =37,000

Hence, number of shares outstanding is 37,000.

Oct. 5

Given,
Issued shares are 47,400.
Treasury Shares are 3,000.

Substitute 47,400 for issue shares and 3,000 for treasury shares in the above formula.

    NumberofOutstandingShares=47,4003,000 =44,400

Hence, number of shares outstanding is 44,400.

Net income earned by the company during the year 2017:

Formula to calculate net income during the year,

    NetIncome=( ClosingBalanceOfRetainedEarnings OpeningBalanceOfRetainedEarnings +DividendPaidDuringtheYear )

Substitute $400,000 for closing balance of retained earnings, $320,000 for opening balance of retained earnings and $168,000 for dividend paid during the year in the above formula.

    NetIncome=$400,000$320,000+$168,000 =$248,000

Hence, the net income of the year is $248,000.

Amount of capitalization of retained earnings:

Amount of capitalization of retained earnings for stock dividend refer to that amount which is used from retained earnings account to issue common stock account and that amount is $88,800.

Working notes:

Calculation of number of shares issued,

    Numberofsharesissued=Numberofoutsandingshares×StockDividend =37,000× 20 100 =7,400

Calculation of total amount capitalized,

    TotalAmountCapitalized=Numberofsharesissued×Shareprice =7,400×$12 =$88,800

Hence, total amount capitalized is $88,800.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 11 Solutions

Financial and Managerial Accounting

Ch. 11 - List the general rights of common stockholders.Ch. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 9DQCh. 11 - Prob. 10DQCh. 11 - Prob. 11DQCh. 11 - Prob. 12DQCh. 11 - Prob. 13DQCh. 11 - Prob. 14DQCh. 11 - Prob. 15DQCh. 11 - Prob. 16DQCh. 11 - Prob. 17DQCh. 11 - Prob. 18DQCh. 11 - Prob. 19DQCh. 11 - Prob. 1QSCh. 11 - Prob. 2QSCh. 11 - Prob. 3QSCh. 11 - Prob. 4QSCh. 11 - Prob. 5QSCh. 11 - Prob. 6QSCh. 11 - Prob. 7QSCh. 11 - Prob. 8QSCh. 11 - Prob. 9QSCh. 11 - Prob. 10QSCh. 11 - Prob. 11QSCh. 11 - Prob. 12QSCh. 11 - Prob. 13QSCh. 11 - Prob. 14QSCh. 11 - QS 11-15 Basic earnings per share A1 Epic company...Ch. 11 - Prob. 16QSCh. 11 - Prob. 17QSCh. 11 - Prob. 18QSCh. 11 - Prob. 19QSCh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 1PSACh. 11 - Prob. 2PSACh. 11 - Prob. 3PSACh. 11 - Prob. 4PSACh. 11 - Prob. 5PSACh. 11 - Prob. 6PSACh. 11 - Problem 16-7AA FIFO: Process cost summary,...Ch. 11 - Prob. 1PSBCh. 11 - Prob. 2PSBCh. 11 - Prob. 3PSBCh. 11 - Prob. 4PSBCh. 11 - Prob. 5PSBCh. 11 - Prob. 6PSBCh. 11 - Prob. 7PSBCh. 11 - Prob. 11SPCh. 11 - Prob. 1GLPCh. 11 - Prob. 2GLPCh. 11 - Prob. 1BTNCh. 11 - Prob. 2BTNCh. 11 - Prob. 3BTNCh. 11 - Prob. 4BTNCh. 11 - Prob. 5BTNCh. 11 - Prob. 6BTNCh. 11 - Prob. 7BTNCh. 11 - Prob. 8BTNCh. 11 - Prob. 9BTN
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education