Chapter 15: Question 28Q (page 810)
How are restrictions of retained earnings reported?
A debit is recorded for a restriction on retained profits. A deficit is defined as a debit balance in the Retained Earnings account.
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Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.
Nottebart Corporation has outstanding 10,000 shares of \(100 par value, 6% preferred stock and 60,000 shares of \)10 par value common stock. The preferred stock was issued in January 2017, and no dividends were declared in 2017 or 2018. In 2019, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?
(Treasury Stock Transactions and Presentation) Clemson Company had the following stockholders’ equity as of January 1, 2017
Common stock, \(5 par value, 20,000 shares issued \)100,000
Paid-in capital in excess of par—common stock 300,000
Retained earnings 320,000
Total stockholders’ equity \(720,000
During 2017, the following transactions occurred.
Feb.1 Clemson repurchased 2,000 shares of treasury stock at a price of \)19
per share.
Mar.1 800 shares of treasury stock repurchased above were reissued at \(17
per share.
Mar.18 500 shares of treasury stock repurchased above were reissued at \)14
per share.
Apr. 22 600 shares of treasury stock repurchased above were reissued at \(20
per share.
Instructions
Sprinkle Inc. has outstanding 10,000 shares of \(10 par value common stock. On July 1, 2017, Sprinkle reacquired 100 shares at \)87 per share. On September 1, Sprinkle reissued 60 shares at \(90 per share. On November 1, Sprinkle reissued 40 shares at \)83 per share. Prepare Sprinkle’s journal entries to record these transactions using the cost method.
Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain.
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