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Chapter 13: Q11RQ (page 707)
Where and how is treasury stock reported on the balance sheet?
Recording treasury stock under the cost method, the cost of treasury stock is recorded at the end of the section Stockholders' Equity of the balance sheet. Treasury stock will be reduced from the value in Stockholders' Equity.
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Question: Journalizing issuance of stock鈥攁t par and at a premium
Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.
Requirements
1. Journalize Colorado鈥檚 issuance of 4,500 shares of common stock for $6 per share.
Computing dividends on preferred and common stock and journalizing
The following elements of stockholders鈥� equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:
800,000
Preferred Stock鈥�4%, \(2 Par Value; 80,000 shares
authorized, 55,000 shares issued and outstanding
Paid-In Capital:
\) 110,000
Stockholders鈥� Equity
Common Stock鈥�$0.10 Par Value; 8,750,000 shares
authorized, 8,000,000 shares issued and outstanding
Sneed paid no preferred dividends in 2017.
Requirements
2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31
Question: Organizing a corporation and issuing stock
Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of \(350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
3. If they decide to issue \)5 par common stock and anticipate an initial market price of \(20 per share, how many shares will they need to issue to raise \)2,750,000?
Question: Accounting for cash dividends
Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.
Requirements
2. Journalize for Java the entry paying the cash dividends on January 4, 2019.
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