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Chapter 15: Question 18Q (page 810)

Indicate how each of the following accounts should be classified in the stockholders鈥� equity section.

  1. Common Stock.
  2. Retained Earnings.
  3. Paid-in Capital in Excess of Par鈥擟ommon Stock.
  4. Treasury Stock.
  5. Paid-in Capital from Treasury Stock.
  6. Paid-in Capital in Excess of Stated Value鈥擟ommon Stock.
  7. Preferred Stock.

Short Answer

Expert verified

The shareholders' equity component of the balance sheet includes preferred stock, common stock, additional paid-in capital, retained earnings, and treasury stock.

Step by step solution

01

Meaning of Stockholder Equity

The assets left in a company after all liabilities have been paidare stockholders' equity.

This amount is equal to total liabilities minus total assets; alternatively, it is equal to the sum of share capital and retained earnings minus treasury stock.

02

Classification of Stockholder Equity

1. Common Stock

In the stockholders' equity section, common Stock can be classified as capital stock.

2. Retained Earnings

In the stockholders' equity section, retained earnings can be classed as retained earnings.

3. Paid-in Capital in Excess of Par-Common Stock

In excess of par-common stock, paid-in capital is included in the shareholders' equity section as additional paid-in capital.

4. Treasury Stock

Treasury stock is subtracted from total paid-in capital and retained earnings in the shareholders' equity section.

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Most popular questions from this chapter

(Equity Items on the Balance Sheet) The following are selected transactions that may affect stockholders鈥� equity.

  1. Recorded accrued interest earned on a note receivable.
  2. Declared a cash dividend.
  3. Declared and distributed a stock split.
  4. Approved a retained earnings restriction.
  5. Recorded the expiration of insurance coverage that was previously recorded as prepaid insurance.
  6. Paid the cash dividend declared in item 2 above.
  7. Recorded accrued interest expense on a note payable.
  8. Declared a stock dividend.
  9. Distributed the stock dividend declared in item 8.

Instructions

In the following table, indicate the effect each of the nine transactions has on the financial statement elements listed. Use the following code: I = Increase, D = Decrease, NE = No effect.

Item

Asset

Liabilities

Stockholders鈥� Equity

Paid-in Capital

Retained

Earnings

Net Income

(Stock Dividends and Stock Split) Oregon Inc. \(10 par common stock is selling for \)110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Oregon common stock before a forthcoming stock issue but does not wish to distribute capital at this time. The board also believes that too many adjustments to the stockholders鈥� equity section, especially retained earnings, might discourage potential investors. The board has considered three options for stimulating interest in the stock:

The board has considered three options for stimulating interest in the stock:

  1. A 20% stock dividend.
  2. A 100% stock dividend.
  3. A 2-for-1 stock split.

Instructions

Acting as financial advisor to the board, you have been asked to report briefly on each option and, considering the board鈥檚 wishes, make a recommendation. Discuss the effects of each of the foregoing options.

(Preferred Stock Entries and Dividends) Otis Thorpe Corporation has 10,000 shares of \(100 par value, 8%, preferred stock and 50,000 shares of \)10 par value common stock outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, balance sheet? How should these dividends be reported?
  2. If the preferred stock is convertible into seven shares of \(10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?
  3. If the preferred stock was issued at \)107 per share, how should the preferred stock be reported in the stockholders鈥� equity section?

Kaymer Corporation issued 300 shares of \(10 par value ordinary shares for \)4,500. Prepare Kaymer鈥檚 journal entry.

How are restrictions of retained earnings reported?
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