Chapter 13: 9RQ (page 707)
If stock is issued for assets other than cash describe the recording of this transaction
The stocks issued for assets other than cash are recorded at the market value of the assets exchanged or the market value of the corporate stock.
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Question: Accounting for cash dividends
Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.
Requirements
1. Journalize for Java the entry declaring the cash dividends on December 15, 2018.
Analyzing the effect of prior-period adjustments
Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.
Requirements
1. Determine the effect of the error on the accounting equation in 2018.
Analyzing the effect of prior-period adjustments
Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.
Requirements
2. How should this error be reported in the 2019 financial statements?
Journalizing a stock dividend and reporting stockholders’ equity
The stockholders’ equity of Lakeside Occupational Therapy, Inc. on December 31, 2017, follows:
Common Stock—\(1 Par Value; 1,200 shares
authorized, 400 shares issued and outstanding
Paid-In Capital:
120,000
400
2,000
Retained Earnings
Total Stockholders’ Equity \) 122,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 1,600
Total Paid-In Capital
\(
On April 30, 2018, the market price of Lakeside’s common stock was \)16 per share and the company declared a 13% stock dividend. The stock was distributed on May 15.
Requirements
1. Journalize the declaration and distribution of the stock dividend.
2. Prepare the stockholders’ equity section of the balance sheet as of May 31, 2018. Assume Retained Earnings are $120,000 on April 30, 2018, before the stock dividend, and the only change made to Retained Earnings before preparing the balance sheet was closing the Stock Dividends account.
What are the two basic sources of stockholders’ equity? Describe each source.
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