Chapter 13: 10RQ (page 707)
What is treasury stock? What type of account is Treasury Stock, and what is the account’s normal balance?
Treasury Stock refers to previously outstanding stock repurchased from stockholders by the issuing company. It is a contra equity account with a normal debit balance.
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Vollmer, Inc. had reported the following balances:
December 31, 2019 December 31, 2018
Net Income \( 80,000 \) 60,000
Preferred Dividends 2,000 5,000
Total Stockholders’ Equity 340,000 310,000
Stockholders’ Equity attributable to Preferred Stock 20,000 20,000
Number of Common Shares Outstanding 10,000 14,000
11. Compute Vollmer’s earnings per share for 2019.
12. Compute Vollmer’s price/earnings ratio for 2019, assuming the market price is $40 per share.
13. Compute Vollmer’s rate of return on common stockholders’ equity for 2019.
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
e. Exposure to double taxation is evident.
Journalizing issuance of stock and preparing the stockholders’ equity section of the balance sheet
The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:
Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.
12 Issued 400 shares of preferred stock for cash of \)23,000.
14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.
Requirements
1. Record the transactions in the general journal.
What is the effect on the accounting equation when cash dividends are declared?
What is the effect on the accounting equation when cash dividends are paid?
Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity
The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:
Common Stock—\(10 Par Value; 350,000 shares
authorized, 32,000 shares issued and outstanding
Paid-In Capital:
160,000
\) 320,000
650,000
Retained Earnings
Total Stockholders’ Equity \( 810,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 330,000
Total Paid-In Capital
During 2018, Goldstein completed the following selected transactions:
Feb. 6 Declared a 15% stock dividend on common stock. The market value of
Goldstein’s stock was \)25 per share.
15 Distributed the stock dividend.
Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.
Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.
Requirements
2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Goldstein’s net income for the year was $90,000.
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