Chapter 15: Question 14Q (page 810)
For what reasons might a corporation purchase its own stock?
A corporation may repurchase its company’s shares to increase EPS and other financial ratios to help increase the company’s assets.
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Why is the distinction between paid-in capital and retained earnings important?
Before Gordon Corporation engages in the treasury stock transactions listed on the next page, its general ledger reflects, among others, the following account balances (par value of its stock is \(30 per share).
Paid-in Capital in Excess of Par Common Stock Retained Earnings
Common Stock
\)99,000
Instructions
Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes.
(a) Bought 380 shares of treasury stock at \(40 per share.
(b) Bought 300 shares of treasury stock at \)45 per share.
(c) Sold 350 shares of treasury stock at \(42 per share.
(d) Sold 110 shares of treasury stock at \)38 per share.
(Stockholders’ Equity Section) Bruno Corporation’s post-closing trial balance at December 31, 2017, is shown as follows.
BRUNO CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2017 | ||
Dr. | Cr. | |
Accounts payable | \( 310,000 | |
Accounts receivable | \) 480,000 | |
Accumulated depreciation—buildings | 185,000 | |
Additional paid-in capital in excess | ||
of par—common | 1,300,000 | |
From treasury stock | 160,000 | |
Allowance for doubtful accounts | 30,000 | |
Bonds payable | 300,000 | |
Buildings | 1,450,000 | |
Cash | 190,000 | |
Common stock (\(1 par) | 200,000 | |
Dividends payable (preferred stock—cash) | 4,000 | |
Inventory | 560,000 | |
Land | 400,000 | |
Preferred stock (\)50 par) | 500,000 | |
Prepaid expenses | 40,000 | |
Retained earnings | 301,000 | |
Treasury stock (common at cost) | 170,000 | |
Totals | \(3,290,000 | \)3,290,000 |
At December 31, 2017, Bruno had the following number of common and preferred shares. | ||
Common | Preferred | |
Authorized | 600,000 | 60,000 |
Issued | 200,000 | 10,000 |
Outstanding | 190,000 | 10,000 |
The dividends on preferred stock are
Instructions
Prepare the stockholders’ equity section of Bruno’s balance sheet at December 31, 2017.
This comment appeared in the annual report of MacCloud Inc.: “The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property dividends on the Class B common stock, it would be required to pay at least the same dividend on the Class A common stock.” How is a property dividend accounted for in the financial records?
The term reserves is used under IFRS with reference to all of the following except:
(a) gains and losses on revaluation of property, plant, and equipment.
(b) capital received in excess of the par value of issued shares.
(c) retained earnings.
(d) fair value differences.
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