Chapter 13: Q25RQ (page 707)
What does the rate of return on common stock show, and how is it calculated?
The rate of return on common stock is computed by dividing a corporate's net income by the average common stockholders' equity.
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What is a stock dividend?
Question - Describing corporation characteristics
Due to recent beef recalls, Southwest Steakhouse is considering incorporating. Bob, the owner, wants to protect his personal assets in the event the restaurant is sued.
Requirements
1. Which advantage of incorporating is most applicable? What are other advantages of organizing as a corporate entity?
A Identifying sources of equity, stock issuance, and dividends
Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:
Preferred Stock—7%, ? Par Value; 625,000 shares
authorized, 280,000 shares issued and outstanding
Paid-In Capital:
\( 1,400,000
1,340,000
Stockholders’ Equity
Paid-In Capital in Excess of Par—Common 2,900,000
Total Paid-In Capital 5,640,000
Retained Earnings 12,000,000
Total Stockholders’ Equity \) 17,640,000
Common Stock—$1 Par Value; 3,000,000 shares
authorized, 1,340,000 shares issued and outstanding
Requirements
3. Make two summary journal entries to record issuance of all the Voyage Comfort Specialists’ stock for cash. Explanations are not required.
Question: Journalizing a large stock dividend
Nelly, Inc. had 320,000 shares of \(2 par value common stock issued and outstanding as of December 15, 2018. The company is authorized to issue 1,300,000 common shares. On December 15, 2018, Nelly declared a 40% stock dividend when the market value for Nelly’s common stock was \)7 per share. The stock was issued on Dec. 30.
Requirements
2. How many shares of common stock are outstanding after the dividend?
On January 3, Halsall Corporation purchased 2,000 shares of the company’s \(2 par value common stock as treasury stock, paying cash of \)8 per share. On January 30, Halsall sold 1,200 shares of the treasury stock for cash of $10 per share. Journalize these transactions.
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