Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
Question
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Chapter 13, Problem 2BP

1.

To determine

Prepare journal entries to record the transactions for 2016.

1.

Expert Solution
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Explanation of Solution

Treasury stock: The shares which were reacquired or bought back by the company, but not formally retired from the corporation stock, are called as treasury stock. The re-acquisition of issued shares decreases the number of outstanding shares.

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

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, expenses.

Prepare journal entries to record the transactions as follows:

DateAccount TitlesDebit ($)Credit ($)
January 10Treasury Stock (40,000shares×$12) 480,000 
    Cash 480,000
 (To record purchase of treasury stock)  
    
March 2Retained earnings (160,000shares×$1.50) 240,000 
    Common dividend payable 240,000
 (To record the dividend declaration)  
    
March 31Common dividend payable 240,000 
    Cash 240,000
 (To record the payment of cash dividend)  
    
November 11Cash (24,000shares×$13) 312,000 
    Treasury Stock (24,000shares×$12) 288,000
    Paid-In Capital, Treasury stock     (24,000shares×$1) 24,000
 (To record sale of treasury stock for above the cost price)  
    
November 25Cash (16,000shares×$9.50) 152,000 
Paid-in Capital, Treasury stock 24,000 
Retained Earnings16,000 
    Treasury Stock, Common          (16,000shares×$12) 192,000
 (To record sale of treasury stock)  
    
December 1Retained earnings (200,000shares×$2.50) 500,000 
    Common dividend payable 500,000
 (To record the dividend declaration)  
    
December 31Income summary1,072,000 
    Retained earnings 1,072,000
 (To close the income summary account)  

Table (1)

2.

To determine

Prepare a statement of retained earnings for the year ended December 31, 2016.

2.

Expert Solution
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Explanation of Solution

Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

Prepare a statement of retained earnings for the year ended December 31, 2016 as follows:

Corporation B
Statement of Retained Earnings
For Year Ended December 31, 2016
Retained earnings, December 31, 2018$2,160,000
Add: Net Income1,072,000
 3,232,000
Less: Cash dividends declared(740,000)
          Treasury stock reissuances(16,000)
Retained earnings, December 31, 2016$2,476,000

Table (2)

Conclusion

Therefore, retained earnings as on December 31, 2016 are $2,476,000.

3.

To determine

Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2016.

3.

Expert Solution
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Explanation of Solution

Balance Sheet: Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Stockholders’ Equity: Stockholders Equity refers to the right of the owner to possess over the resources of the business. Common stock and the retained earnings are the components of the Stockholders Equity.

Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2016 as follows:

Corporation B
Stockholders’ Equity Section of the Balance Sheet
For Year Ended December 31, 2016
Common stock–$1 par value; 320,000 shares authorized, 200,000 shares issued and outstanding$200,000
Paid-in capital in excess of par value, Common stock1,400,000
Retained earnings (Refer part 2)2,476,000
Total stockholders’ equity$4,076,000

Table (3)

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Chapter 13 Solutions

Principles of Financial Accounting.

Ch. 13 - List the general rights of common stockholders.Ch. 13 - What is the difference between the market value...Ch. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Identify and explain the importance of the three...Ch. 13 - Prob. 11DQCh. 13 - How does declaring a stock dividend affect the...Ch. 13 - What is the difference between a stock dividend...Ch. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Prob. 16DQCh. 13 - Prob. 17DQCh. 13 - Prob. 18DQCh. 13 - How is book value per share computed for a...Ch. 13 - Prob. 20DQCh. 13 - Prob. 21DQCh. 13 - Prob. 22DQCh. 13 - Prob. 1QSCh. 13 - Issuance of common stock Prepare the journal entry...Ch. 13 - Issuance of par and stated value common stock...Ch. 13 - Issuance of no-par common stock Prepare the...Ch. 13 - Prob. 5QSCh. 13 - Accounting for cash dividends Prepare journal...Ch. 13 - Accounting for small stock dividend The...Ch. 13 - Accounting for dividends For each of the following...Ch. 13 - Preferred stock issuance and dividends 1. Prepare...Ch. 13 - Dividend allocation between classes of...Ch. 13 - Purchase and sale of treasury stock On May 3,...Ch. 13 - Prob. 12QSCh. 13 - Prob. 13QSCh. 13 - Basic earnings per share Murray Company reports...Ch. 13 - Epic Company earned net income of 900,000 this...Ch. 13 - Price-earnings ratio Compute Topp Companys...Ch. 13 - Prob. 17QSCh. 13 - Book value per common share The stockholders...Ch. 13 - Prob. 19QSCh. 13 - Prob. 1ECh. 13 - Accounting for par, stated, and no-par stock...Ch. 13 - Recording stock issuances Prepare journal entries...Ch. 13 - Stock issuance for noncash assets Sudoku Company...Ch. 13 - Prob. 5ECh. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Prob. 15ECh. 13 - The equity section of Cyril Corporations balance...Ch. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Stockholders equity transactions and analysis...Ch. 13 - Prob. 2APCh. 13 - Prob. 3APCh. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Stockholders equity transactions and analysis...Ch. 13 - Prob. 2BPCh. 13 - Prob. 3BPCh. 13 - Prob. 4BPCh. 13 - Prob. 5BPCh. 13 - Prob. 13SPCh. 13 - Prob. 1BTNCh. 13 - Prob. 2BTNCh. 13 - Prob. 3BTNCh. 13 - Prob. 5BTNCh. 13 - Prob. 7BTNCh. 13 - Prob. 9BTN
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