Chapter 15: Question 6Q (page 810)
What is meant by par value, and what is its significance to stockholders?
The par value is a fixed and arbitraryamount per share attributed to the shares by the incorporators. It helps to determine the overall value of the shares issued.
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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 \(270,000 \)80,000
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.
Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.
(Preferred Dividends) Matt Schmidt Company’s ledger shows the following balances on December 31, 2017.
7% Preferred stock—\(10 par value, outstanding 20,000 shares \) 200,000
Common stock—\(100 par value, outstanding 30,000 shares 3,000,000
Retained earnings 630,000
Instructions
Assuming that the directors decide to declare total dividends in the amount of \)366,000, determine how much each class of stock should receive under each of the conditions stated below. One year’s dividends are in arrears on the preferred stock.
Indicate how each of the following accounts should be classified in the Equity section.
Describe the accounting entry for a stock dividend, if any. Describe the accounting entry for a stock split, if any.
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