Recording Stock Dividends and Treasury Stock Transactions
At the beginning of 2015, Thompson Service, Inc., showed the following amounts in the stockholders’ equity section of its balance sheet:
Stockholders’ equity: |
|
Capital stock, $1 par value, 500,000 shares authorized, 382,000 issued and outstanding | $ 382,000 |
Additional paid-in capital: capital stock | 4,202,000 |
Total paid-in capital | $4,584,000 |
Retained earnings | 2,704,600 |
Total stockholders’ equity | $7,288,600 |
The transactions relating to stockholders’ equity during the year are as follows:
Jan. 3 | Declared a dividend of $1 per share to stockholders of record on January 31, payable on February 15. |
Feb. 15 | Paid the cash dividend declared on January 3. |
Apr. 12 | The corporation purchased 6,000 shares of its own capital stock at a price of $40 per share. |
May 9 | Reissued 4,000 shares of the treasury stock at a price of $44 per share. |
June 1 | Declared a 5 percent stock dividend to stockholders of record at June 15, to be distributed on June 30. The market price of the stock at June 1 was $42 per share. (The 2,000 shares remaining in the treasury do not participate in the stock dividend.) |
June 30 | Distributed the stock dividend declared on June 1. |
Aug. 4 | Reissued 600 of the 2,000 remaining shares of treasury stock at a price of $37 per share. |
Dec. 31 | The Income Summary account, showing net income for the year of $1,928,000, was closed into the Retained Earnings account. |
Dec. 31 | The $382,000 balance in the Dividends account was closed into the Retained Earnings account. |
Instructions
a. Prepare in general journal form the entries to record the above transactions.
b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2015. Use the format illustrated in Exhibit 12–6 . Include a supporting schedule showing your computation of retained earnings at that date.
c. Compute the maximum cash dividend per share that legally could be declared at December 31, 2015, without impairing the paid-in capital of Thompson Service. (Hint: The availability of retained earnings for dividends is restricted by the cost of treasury stock owned.)
EXHIBIT 12–6 Stockholders’ Equity Section of Balance Sheet
Stockholders’ Equity | ||
Capital stock: |
|
|
5% convertible preferred, $100 par value, 3,000 |
|
|
shares authorized and issued |
| $ 300,000 |
Common stock, $10 par value, 100,000 shares authorized, issued 30,800 (of which 1,000 are held in treasury) |
| 308,000 |
Additional paid-in capital: |
|
|
From issuance of common stock | $580,000 |
|
From stock dividends | 112,000 | 692,000 |
Total paid-in capital |
| $1,300,000 |
Retained earnings |
| 780,400 |
Subtotal |
| $2,080,400 |
Less: Treasury stock (1,000 shares at $47 per share) |
| 47,000 |
Total stockholders’ equity |
| $2,033,400 |
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.