Chapter 15: Question 6BE (page 811)
Moonwalker Corporation issued 2,000 shares of its
Cash account should be debited with credit account of common stock and paid-in capital in excess of par common stock.
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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.
(Comparison of Alternative Forms of Financing) Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling \(4,200,000.
Jana Kingston Co. | |
Current liabilities | \) 300,000 |
Long-term debt, 10% | 1,200,000 |
Common stock (\(20 par) | 2,000,000 |
Retained earnings (Cash dividends, \)328,000) | 700,000 |
\(4,200,000 |
Mary Ann Benson Co. | |
Current liabilities | \) 600,000 |
Common stock (\(20 par) | 2,900,000 |
Retained earnings (Cash dividends, \)328,000) | 700,000 |
\(4,200,000 |
For the year, each company has earned the same income before interest and taxes.
Jana Kingston Co. | Mary Ann Benson Co. | |
Income before interest and taxes | \)1,200,000 | \(1,200,000 |
Interest expense | 120,000 | 0 |
1,080,000 | 1,200,000 | |
Income taxes (45% | 486,000 | 540,000 |
Net income | \) 594,000 | \( 660,000 |
At year end, the market price of Kingston’s stock was \)101 per share, and Benson’s was $63.50.
Instructions
Sprinkle Inc. has outstanding 10,000 shares of
Cole Inc. owns shares of Marlin Corporation stock. At December 31, 2017, the securities were carried in Cole’s accounting records at their cost of
(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
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