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Chapter 13: 7RQ (page 707)
What are the two basic sources of stockholders鈥� equity? Describe each source.
The two primary sources of stockholders' equity are retained earnings and paid-in capital.
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Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders鈥� equity
The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders鈥� equity:
Common Stock鈥擻(10 Par Value; 200,000 sharesauthorized, 22,000 shares issued and outstandingPaid-In Capital:
163,000
\) 220,000
580,000
Retained Earnings
Total Stockholders鈥� Equity \( 743,000
Stockholders鈥� Equity
Paid-In Capital in Excess of Par鈥擟ommon 360,000
Total Paid-In Capital
During 2018, Cullins completed the following selected transactions:
Feb. 6 Declared a 5% stock dividend on common stock. The market value of
Cullins鈥檚 stock was \)25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.
Nov. 27 Declared a \)0.20 per share cash dividend on the common stock outstanding.
Requirements
1. Record the transactions in the general journal.
2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins鈥檚 net income for the year was $87,000.
3. Prepare the stockholders鈥� equity section of the balance sheet at December 31, 2018.
Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet
The charter of Evergreen Corporation authorizes the issuance of 900 shares of preferred stock and 1,400 shares of common stock. During a two-month period, Evergreen completed these stock-issuance transactions:
Mar. 23 Issued 230 shares of \(3 par value common stock for cash of \)15 per share.
Apr. 12 Received inventory with a market value of \(27,000 and equipment with a market value of \)19,000 for 320 shares of the \(3 par value common stock.
17 Issued 900 shares of 5%, \)20 par value preferred stock for \(20 per share.
Requirements
2. Prepare the stockholders鈥� equity section of the Evergreen balance sheet as of April 30, 2018, for the transactions given in this exercise. Retained Earnings has a balance of \)73,000 at April 30, 2018
Computing earnings per share and price/earnings ratio
Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket鈥檚 books include the following figures:
Preferred Stock鈥�6%, \)60 par value; 2,000 shares authorized, 1,000
shares issued and outstanding \( 60,000
Common Stock鈥擻)5 par value; 80,000 shares authorized, 48,000 shares
issued, 46,700 shares outstanding 240,000
Paid-In Capital in Excess of Par鈥擟ommon 470,000
Treasury Stock鈥擟ommon; 1,300 shares at cost (26,000)
Requirements
2. Assume Rocket鈥檚 market price of a share of common stock is $12 per share. Compute Rocket鈥檚 price/earnings ratio.
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
d. Stockholders鈥� liability is limited.
Journalizing a stock dividend and reporting stockholders鈥� equity
The stockholders鈥� equity of Lakeside Occupational Therapy, Inc. on December 31, 2017, follows:
Common Stock鈥擻(1 Par Value; 1,200 shares
authorized, 400 shares issued and outstanding
Paid-In Capital:
120,000
400
2,000
Retained Earnings
Total Stockholders鈥� Equity \) 122,000
Stockholders鈥� Equity
Paid-In Capital in Excess of Par鈥擟ommon 1,600
Total Paid-In Capital
\(
On April 30, 2018, the market price of Lakeside鈥檚 common stock was \)16 per share and the company declared a 13% stock dividend. The stock was distributed on May 15.
Requirements
1. Journalize the declaration and distribution of the stock dividend.
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