Journalize the transactions.
Answer to Problem 5PA
Journalize the transactions for Corporation P.
Date | Account Titles and Explanation | Debit ($) | Credit ($) | |
January | 9 | No entry is required | ||
February | 28 | 1,120,000 | ||
Cash | 1,120,000 | |||
(To record the purchase of 40,000 shares of treasury stock) | ||||
May | 1 | Cash Dividends (2) | 199,200 | |
Cash Dividends Payable | 199,200 | |||
(To record the declaration of cash dividends) | ||||
July | 10 | Cash Dividends Payable (2) | 199,200 | |
Cash | 199,200 | |||
(To record the payment of cash dividends) | ||||
September | 7 | Cash | 1,020,000 | |
Treasury stock | 840,000 | |||
Paid-in capital from treasury stock | 180,000 | |||
(To record sale of treasury stock for above the cost price) | ||||
October | 1 | Cash Dividends (4) | 202,800 | |
Cash Dividends Payable | 202,800 | |||
(To record the declaration of cash dividends) | ||||
October | 1 | Stock Dividends (6) | 856,800 | |
Common Stock Dividends Distributable (7) | 595,000 | |||
Paid-in Capital in excess of Stated Value-Common stock (8) | 261,800 | |||
(To record the declaration of stock dividends) | ||||
December | 1 | Cash Dividends Payable (4) | 202,800 | |
Cash | 202,800 | |||
(To record the payment of cash dividends) | ||||
December | 1 | Common Stock Dividends Distributable (7) | 595,000 | |
Common Stock | 595,000 | |||
(To record the distribution of stock dividends) |
Table 1
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.
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.
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.
Stated value: It refers to an amount per share, which is assigned by the board of directors to no par value stock.
Issue of common stock for non-cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non-cash assets such as land, buildings, or equipment.
This is a financial statement that shows the amount of the net income retained by a company at a particular point of time for reinvestment and pays its debts and obligations. It shows the amount of retained earnings that is not paid as dividends to the shareholders.
Working note:
Compute number of common shares outstanding after the purchase of treasury stock on February 28.
(1)
Compute the amount of total cash dividends declared on May 1.
(2)
Compute number of common shares outstanding after the sale of treasury stock on September 7.
(3)
Compute the amount of total cash dividends declared on October 1.
(4)
Compute the stock dividends shares.
(5)
Compute the stock dividends amount payable to common stockholders.
(6)
Compute common stock dividends distributable value.
(7)
Compute paid-in capital in excess of par value-common stock.
(8)
Note:
Stock split does not affect the accounting equation of assets, liabilities, or stockholders’ equity. It will affect only the number of shares outstanding and value per share. Hence, on January 9 no entry is passed.
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Chapter 12 Solutions
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