Chapter 15: Question 4Q (page 810)
Why is the distinction between paid-in capital and retained earnings important?
Paid in capital reflects investments made by equity holders, while retained earnings reflect the balance of profits in the business.
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Moonwalker Corporation issued 2,000 shares of its
Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.
(Stock Dividends and Splits) The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions.
Instructions
Washington Company has the following stockholders’ equity accounts at December 31, 2017.
Common Stock (
Retained Earnings 294,000
Instructions
a. Prepare entries in journal form to record the following transactions, which took place during 2018.
1. 280 shares of outstanding stock were purchased at \(97 per share. (These are to be accounted for using the cost method.)
2. A \)20 per share cash dividend was declared.
3. The dividend declared in (2) above was paid.
4. The treasury shares purchased in (1) above were resold at \(102 per share.
5. 500 shares of outstanding stock were purchased at \)105 per share.
6. 350 of the shares purchased in (5) above were resold at \(96 per share.
b.Prepare the stockholders’ equity section of Washington Company’s balance sheet after giving effect to these transactions, assuming that the net income for 2018 was \)94,000. State law requires restriction of retained earnings for the amount of treasury stock.
(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January 2015 and reported the following results for each of its 3 years of operations.
2015
At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.
8% cumulative preferred stock, par value \)100;
authorized, issued, and outstanding 5,000 shares \(500,000
Common stock, par value \)1.00; authorized 1,000,000 shares;
issued and outstanding 750,000 shares \(750,000
Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.
Instructions
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