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Chapter 15: Question 9BE (page 811)

Arantxa Corporation has outstanding 20,000 shares of \(5 par value common stock. On August 1, 2017, Arantxa reacquired 200 shares at \)80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa鈥檚 journal entries to record these transactions using the cost method.

Short Answer

Expert verified

In the books of Arantxa, Corporation treasury stock should be credited with $16,000.

Step by step solution

01

Meaning of Outstanding Shares

The termoutstanding shares refers to the actualnumber of sharesof a company outstanding in the market and holding by its shareholders at a given point in time.

02

Preparing Sprinkle’s Journal Entries using Cost Method

Date

Particular

Folio

Debit USD

$

Credit USD

$

01-08-2017

Treasury Stock (200$80) A/c Dr.

16,000

To Cash A/c Cr.

16,000

(being treasury stock issued)

01-11-2017

Cash (200$70) A/c Dr.

14,000

Retained Earnings A/c. Dr.

2,000

To Treasury Stock A/c Cr.

16,000

(being treasury stock transferred)

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Most popular questions from this chapter

The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2017. In 2017, 15,000 shares were authorized and 7,000 shares of common stock (\(50 par value) were issued at a price of \)57. In 2018, 1,000 shares were issued as a stock dividend when the stock was selling for \(60. Three hundred shares of common stock were bought in 2019 at a cost of \)64 per share. These 300 shares are still in the company treasury.

In 2018, 10,000 preferred shares were authorized and the company issued 5,000 of them (\(100 par value) at \)113. Some of the preferred stock was reacquired by the company and later reissued for \(4,700 more than it cost the company.

The corporation has earned a total of \)610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation.

Instructions

Prepare the stockholders鈥� equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2019. Account for treasury stock using the cost method.

Discuss the propriety of showing:

  1. Treasury stock as an asset.
  2. 鈥淕ain鈥� or 鈥渓oss鈥� on sale of treasury stock as additions to or deductions from income.
  3. Dividends received on treasury stock as income.

(Preferred Dividends) Matt Schmidt Company鈥檚 ledger shows the following balances on December 31, 2017.

7% Preferred stock鈥擻(10 par value, outstanding 20,000 shares \) 200,000

Common stock鈥擻(100 par value, outstanding 30,000 shares 3,000,000

Retained earnings 630,000

Instructions

Assuming that the directors decide to declare total dividends in the amount of \)366,000, determine how much each class of stock should receive under each of the conditions stated below. One year鈥檚 dividends are in arrears on the preferred stock.

  1. The preferred stock is cumulative and fully participating.
  2. The preferred stock is noncumulative and nonparticipating.
  3. The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

The books of Conchita Corporation carried the following account balances as of December 31, 2017.

Cash \( 195,000

Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000

Common Stock (no-par value, 300,000 shares issued) 1,500,000

Paid-in Capital in Excess of Par鈥擯referred Stock 150,000

Treasury Stock (common 2,800 shares at cost) 33,600

Retained Earnings 105,000

The company decided not to pay any dividends in 2017.

The board of directors, at their annual meeting on December 21, 2018, declared the following: 鈥淭he current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.鈥� At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.

Instructions

a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b) Could Conchita Corporation give the preferred stockholders 2 years鈥� dividends and common stockholders a 30 cents per share dividend, all in cash?

(Treasury Stock Transactions and Presentation) Clemson Company had the following stockholders鈥� equity as of January 1, 2017

Common stock, \(5 par value, 20,000 shares issued \)100,000

Paid-in capital in excess of par鈥攃ommon stock 300,000

Retained earnings 320,000

Total stockholders鈥� equity \(720,000

During 2017, the following transactions occurred.

Feb.1 Clemson repurchased 2,000 shares of treasury stock at a price of \)19

per share.

Mar.1 800 shares of treasury stock repurchased above were reissued at \(17

per share.

Mar.18 500 shares of treasury stock repurchased above were reissued at \)14

per share.

Apr. 22 600 shares of treasury stock repurchased above were reissued at \(20

per share.

Instructions

  1. Prepare the journal entries to record the treasury stock transactions in 2017, assuming Clemson uses the cost method.
  2. Prepare the stockholders鈥� equity section as of April 30, 2017. Net income for the first 4 months of 2017 was \)130,000.
See all solutions

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