Chapter 11: Q14DQ (page 516)
Why do laws place limits on treasury stock purchases?
Purchases of treasury shares have a comparable effect on a company's assets and stockholder equity as a cash dividend.
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Question: Match each description 1 through 4 with the characteristic of the preferred stock that it best describes by writing the letter of that characteristic in the blank next to each description.
A. Cumulative B. Noncumulative C. Nonparticipating D. Participating
1. Holders of the stock are entitled to receive current and all past dividends before common stockholders receive any dividends.
How is book value per share computed for a corporation with no preferred stock? What is the main limitation of using book value pershare to value a corporation?
Prepare the journal entry to record Autumn Company’s issuance of 63,000 shares of no-par value common stock assuming the shares:
a. Sell for \(29 cash per share.
b. Are exchanged for land valued at \)1,827,000
Harriet Moore is an accountant for New World Pharmaceuticals. Her duties include tracking research and development spending in the new product development division. Over the past six months, Harriet has noticed that a lot of funds have been spent on a particular project for a new drug. She hears “through the grapevine” that the company is about to patent the drug and expects it to be a major advance in antibiotics. Harriet believes that this new drug will greatly improve company performance and will cause the company’s stock to increase in value. Harriet decides to purchase shares of New World to benefit from this expected increase.
Required
What are Harriet’s ethical responsibilities, if any, concerning the information she has learned through her duties as an accountant for New World Pharmaceuticals? What are the implications of her planned purchase of New World shares?
At December 31, the end of Chilton Communication’s third quarter, the following stockholders’ equity accounts are reported:
Common stock, \(10 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \) 960,000
Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . 384,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000
In the fourth quarter, the following entries related to its equity are recorded
Account and explanation | Debit | Credit | |
Jan. 17 | Retained Earnings Common Dividend Payable | 96,000 | 96,000 |
Feb. 5 | Common Dividend Payable Cash | 96,000 | 96,000 |
Feb. 28 | Retained Earnings Common Stock Dividend Distributable Paid-In Capital in Excess of Par Value, Common Stock. | 252,000 | 120,000 132,000 |
Mar. 14 | Common Stock Dividend Distributable Common Stock, \(10 Par Value. | 120,000 | 120,000 |
Mar.25 | Memo—Change the title of the Common Stock account to reflect the new par value of \)5 | ||
Mar. 31 | Income Summary Retained Earnings | 720,000 | 720,000 |
Required
1. Explain the transaction(s) underlying each journal entry.
2. Complete the following table showing the equity account balances at each indicated date (take into account the beginning balances from December 31).
Dec 31 | Jan.17 | Feb.5 | Feb.28 | Mar.14 | Mar.25 | Mar.31 | |
Common stock | \( 960,000 | ||||||
Common stock dividend distributable | 0 | ||||||
Paid-in capital in excess of par, common stock | 384,000 | ||||||
Retained earnings | 1600,000 | ||||||
Total equity | \)2,944,000 |
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