Fundamental Financial Accounting Concepts, 9th Edition
Fundamental Financial Accounting Concepts, 9th Edition
9th Edition
ISBN: 9780078025907
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 11, Problem 9BE

a)

To determine

Ascertain the total number of outstanding shares at the end of the period.

a)

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.

Ascertain the total number of outstanding shares at the end of the period:

Common StockOutstanding
Beginning Number of Shares3,000
Issued This Period2,000
Less: Repurchased as Treasury Stock(500)
Resold Treasury Stock120
Ending number of shares4,620

Table (1)

Therefore, the total number of outstanding shares at the end of the period is 4,620 shares.

b)

To determine

Ascertain the total number of issued shares at the end of the period.

b)

Expert Solution
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Explanation of Solution

Ascertain the total number of issued shares at the end of the period:

Common StockIssued
Beginning Number of Shares3,000
Issued This Period2,000
Ending Number of Shares5,000

Table (2)

Therefore, the total number of issued shares at the end of the period is 5,000 shares.

c)

To determine

Prepare the journal entries for the given transaction, and post to T-accounts.

c)

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, and expenses.

T-account:

T-account refers to an individual account, where the increase or decrease in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

Prepare the journal entries for the given transaction, and post to T-accounts:

Journal entries:

1. Issued 2,000 common stock of $16 par ($10 par)

DateAccount TitlesDebit ($)Credit ($)
Cash (1)32,000
Common Stock, $10 par (2)20,000
Paid-in Capital in Excess of Par, CS (3)12,000
(To record issuance of 2,000 shares in excess of par)

Table (3)

  • Cash is an asset account, and it increases the value of cash account by $32,000. Therefore, debit cash account for $32,000.
  • Common Stock is a component of stockholders’ equity and it increases the value of common stock by $20,000. Therefore, credit common Stock account for $20,000.
  • Paid-in Capital in Excess of Par Value – Common stock is a component of stockholders’ equity and it increases the value of common stock by $12,000. Therefore, credit Paid-in Capital in Excess of Par Value account for $12,000.

Working note:

Calculate the value of cash received from the issuance of common stock.

Cash received = Number of shares × Issued value of common stock= 2,000 shares × $16= $32,000 (1)

Calculate the value of common stock issued at par value

Common stock value} = Number of shares × Par value of common stock= 2,000 shares × $10= $20,000 (2)

Calculate the value of paid-in capital in excess of par value.

Paid-in capital in excess of par value} = (Cash received (1)Common stock value (2) )= $32,000 – $20,000= $12,000 (3)

2. Repurchased 500 shares for $18 per share

DateAccount TitlesDebit ($)Credit ($)
Treasury Stock (4)9,000
Cash9,000
(To record purchase of treasury stock)

Table (4)

  • Treasury stock is contra-stockholders’ equity account with a normal balance of debit. Thus, when treasury stocks are purchased, it decreases the stockholders’ equity account. In this case, it reduces the stockholders’ equity by $9,000. Therefore, treasury stock account is debited with $9,000.
  • Cash is an asset account, and it decreases the value of cash account by $9,000. Therefore, credit cash account for $9,000.

Working note:

Calculate the value of treasury stock:

Treasury stock = [Number of repurchase shares× Value of per share]=500×$18 per share=$9,000 (4)

3. Resold 120 shares of treasury stock for $20 per share

DateAccount TitlesDebit ($)Credit ($)
Cash (5)2,400
Treasury Stock (6)2,160
Paid-In Capital in Excess of Cost, TS (7)240
(To record sale of treasury stock for above the cost price)

Table (5)

  • Cash is an asset account, and it increases the value of cash account by $2,400. Therefore, debit cash account for $2,400.
  • Treasury stock is contra-stockholders’ equity account with a normal balance of debit. Thus, when treasury stocks are sold at its cost price, then cash would be debited and treasury stock would be credited. But, when treasury stocks are sold for higher than its cost price, then cash would be debited and treasury stock would be credited for cost price, and paid-in capital from treasury stock would be credited for excess selling price.

Working note:

Calculate the value of cash received from the resold of treasury stock.

Cash received = Number of resold shares × Selling price per share= 120 shares × $20= $2,400 (5)

Calculate the value of treasury stock resold at original cost

Treasury stock  = Number of resold shares × Original cost per share= 120 shares × $18= $2,160 (6)

Calculate the value of paid-in capital in excess of cost, TS.

Paid-in capital in excess of cost} = (Cash received (5)Common stock value (6) )= $2,400 – $2,160= $240 (7)

T-accounts:

Cash (partial)
Balance. 
1.32,0002. 9,000
3.2,400
Balance
Common Stock
Balance. 30,000
1. 20,000
Balance. 50,000
Paid in capital in excess of Par, CS
Balance. 12,000
1. 12,000
Balance. 24,000
Treasury Stock
2.9,0003. 2,160
Balance6,840
Paid in capital in excess of cost, TS
3. 240
Balance. 240

d)

To determine

Prepare the stockholder’s equity section of the balance sheet.

d)

Expert Solution
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Explanation of Solution

Stockholders’ Equity Section:

Stockholder’s equity section is 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 stockholder’s equity section of the balance sheet as follows:

Stockholders’ Equity$$
Common Stock, $10 par value, 20,000 shares authorized, 5,000 shares issued, and 4,700 shares outstanding50,000
Paid-In Capital in Excess of Par, Common24,000
Paid-In Capital in Excess of Cost, TS240
Total Paid-In Capital74,240
Add: Retained Earnings46,000
Less: Treasury Stock(6,840)
Total Stockholders’ Equity113,400

Table (6)

Therefore, the total value of stockholder’s equity at the end of the year is $113,400.

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Chapter 11 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 11 - Prob. 11QCh. 11 - Prob. 12QCh. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - Prob. 17QCh. 11 - Prob. 18QCh. 11 - Prob. 19QCh. 11 - Prob. 20QCh. 11 - Prob. 21QCh. 11 - Prob. 22QCh. 11 - Prob. 23QCh. 11 - Prob. 24QCh. 11 - Prob. 25QCh. 11 - Prob. 26QCh. 11 - Prob. 27QCh. 11 - Prob. 28QCh. 11 - Prob. 29QCh. 11 - Prob. 30QCh. 11 - Prob. 31QCh. 11 - Prob. 32QCh. 11 - Prob. 1AECh. 11 - Prob. 2AECh. 11 - Prob. 3AECh. 11 - Prob. 4AECh. 11 - Prob. 5AECh. 11 - Prob. 6AECh. 11 - Prob. 7AECh. 11 - Prob. 8AECh. 11 - Prob. 9AECh. 11 - Prob. 10AECh. 11 - Prob. 11AECh. 11 - Prob. 12AECh. 11 - Prob. 13AECh. 11 - Prob. 14AECh. 11 - Prob. 15AECh. 11 - Prob. 16AECh. 11 - Prob. 17AECh. 11 - Prob. 18AECh. 11 - Prob. 19APCh. 11 - Prob. 20APCh. 11 - Prob. 21APCh. 11 - Prob. 22APCh. 11 - Prob. 23APCh. 11 - Prob. 24APCh. 11 - Prob. 25APCh. 11 - Prob. 26APCh. 11 - Prob. 1BECh. 11 - Prob. 2BECh. 11 - Prob. 3BECh. 11 - Prob. 4BECh. 11 - Prob. 5BECh. 11 - Prob. 6BECh. 11 - Prob. 7BECh. 11 - Prob. 8BECh. 11 - Prob. 9BECh. 11 - Prob. 10BECh. 11 - Prob. 11BECh. 11 - Prob. 12BECh. 11 - Prob. 13BECh. 11 - Prob. 14BECh. 11 - Prob. 15BECh. 11 - Prob. 16BECh. 11 - Prob. 17BECh. 11 - Prob. 18BECh. 11 - Prob. 19BPCh. 11 - Prob. 20BPCh. 11 - Prob. 21BPCh. 11 - Prob. 22BPCh. 11 - Prob. 23BPCh. 11 - Prob. 24BPCh. 11 - Prob. 25BPCh. 11 - Prob. 26BPCh. 11 - Prob. 1ATCCh. 11 - Prob. 3ATCCh. 11 - Prob. 4ATCCh. 11 - Prob. 5ATCCh. 11 - Prob. 6ATCCh. 11 - Prob. 7ATCCh. 11 - Prob. 8ATCCh. 11 - Prob. 9ATCCh. 11 - Prob. 10ATCCh. 11 - Prob. 1CP
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