Financial & Managerial Accounting
Financial & Managerial Accounting
18th Edition
ISBN: 9781260006520
Author: williams
Publisher: MCG
Question
Book Icon
Chapter 12, Problem 8BP

a.

To determine

Prepare the stockholders’ equity section of the balance sheet for Corporation A at December 31, 2017.

a.

Expert Solution
Check Mark

Explanation of Solution

Stockholders’ equity section: The section of balance sheet which reports the changes in stock, paid-in capital, retained earnings, and treasury stock, during the year is referred to as stockholders’ equity section.

Prepare the stockholders’ equity section of the balance sheet for Corporation A at December 31, 2017.

Financial & Managerial Accounting, Chapter 12, Problem 8BP , additional homework tip  1

Table (1)

Working Notes:

Compute the capital stock value.

Capital stock value = {Number of shares issued × Par value per share}= 20,000 shares × $1= $20,000

Compute the amount of stock dividends to be distributed.

Step 1: Compute the number of shares to be distributed as stock dividends.

Stock dividend shares = {Number of shares outstanding ×Stock dividend percentage}(20,000 shares –4,000 shares)× 10%=16,000 shares × 10%= 1,600 shares (1)

Step 2: Compute the amount of stock dividends to be distributed (Refer to Equation (1) for stock dividend shares value).

Stock dividends to be distributed value} = Stock dividend shares × Par value of stock= 1,600 shares × $1= $1,600

Compute additional paid-in capital from issuance of stock.

Additional paid-in capital from issuance of stock} = {Number of shares issued×(Market value – Par value)}= 20,000 shares ×($25 – $1)= $480,000

Compute additional paid-in capital from stock dividends (Refer to Equation (1) for stock dividend shares).

Additional paid-in capital from stock dividend} = Stock dividend shares × (Market value – Par value)= 1,600 shares ×($31 – $1)= $48,000

Compute amount of retained earnings for the year ended December 31, 2017.

Step 1: Compute amount of retained earnings distributable for stock dividends (Refer to Equation (1) for stock dividend shares value).

Stock dividend = Stock dividend shares × Market value per share= 1,600 shares × $31= $49,600 (2)   

Step 2: Compute amount of retained earnings.

Corporation M
Statement of Retained Earnings
For the Year Ended December 31, 2017
Retained earnings, January 1, 2017$0
Add: Net income850,000
850,000
Less: Stock dividends(49,600)
Retained earnings, December 31, 2017$800,400

Table (2)

Note: Refer to Equation (2) for value and computation of stock dividends.

Conclusion

Thus, the total stockholders’ equity of Corporation M December 31, 2017 is $1,230,000.

b.

To determine

Prepare the stockholders’ equity section of the balance sheet for Corporation A at December 31, 2018.

b.

Expert Solution
Check Mark

Explanation of Solution

Prepare the stockholders’ equity section of the balance sheet for Corporation A at December 31, 2018.

Financial & Managerial Accounting, Chapter 12, Problem 8BP , additional homework tip  2

Table (3)

Working Notes:

Compute the number of shares issued and outstanding, after the stock dividend and stock split transactions.

Number of shares issued and outstanding} = {(Number of shares issued+ Number of stock dividend shares)× Number of shares for 1 common share}=(20,000 shares +1,600 shares)×2 shares=21,600 shares×2 shares=43,200 shares (3)

Compute the capital stock value (Refer to Equation (3) for value of number of shares issued and outstanding).

Capital stock value = {Number of shares issued and outstanding× Par value per share}= 43,200 shares × $0.50= $21,600

Compute additional paid-in capital value from treasury stock.

Additional paid-in capital from treasury stock} = {Number of treasury shares reissued × (Selling price–Purchase price)}= 4,000 shares × ($35–$30)= 4,000 shares × $5= $20,000

Compute amount of retained earnings for the year ended December 31, 2018.

Step 1: Compute amount of cash dividends.

Cash dividends={Number of common shares×Dividend per share}=43,200 shares×$1 per share=$43,200 (4)   

Step 2: Compute amount of retained earnings.

Corporation A
Statement of Retained Earnings
For the Year Ended December 31, 2018
Retained earnings, January 1, 2018$800,400
Add: Net income810,000
1,610,400
Less: Cash dividends(43,200)
Retained earnings, December 31, 2018$1,567,200

Table (4)

Note: Refer to Table (2) for value and computation of opening retained earnings balance, and Equation (4) for value and computation of cash dividends.

Conclusion

Thus, the total stockholders’ equity of Corporation A at December 31, 2018 is $1,567,200.

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 12 Solutions

Financial & Managerial Accounting

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