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Chapter 15: Question 8BE (page 811)

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.

Short Answer

Expert verified

In Sprinkle Inc.’s book, the treasury stock should be credited with $3,480.

Step by step solution

01

Meaning of Per Share Price

The term price per share refers to the value of a single share asked by a company to sell shares to its potential investor to collect finance.

02

Preparing Sprinkle’s journal entries using the cost method

Date

Particular

Folio

Debit USD

$

Credit USD

$

01-07-2017

Treasury Stock (100$87) A/c Dr.

8,700

To Cash A/c Cr.

8,700

(being treasury stock issue)

01-09-2017

Cash A/c (60$90) Dr.

5,400

To Treasury Stock (60$87) A/c Cr.

5,220

To paid-in capital from Cr.

Treasury Stock A/c

180

(being treasury stock credited)

01-11-2017

Cash A/c (40$83) Dr.

3,320

Paid-in capital from Dr.

Treasury Stock A/c

160

To Treasury Stocks (40$87) Cr.

3,480

(being treasury stock transferred)

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Most popular questions from this chapter

Seles Corporation’s charter authorized issuance of 100,000 shares of \(10 par value common stock and 50,000 shares of \)50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

  1. Issued a \(10,000, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for \)106 a share.
  2. Issued 500 shares of common stock for equipment. The equipment had been appraised at \(7,100; the seller’s book value was \)6,200. The most recent market price of the common stock is \(16 a share.
  3. Issued 375 shares of common and 100 shares of preferred for a lump sum amounting to \)10,800. The common had been selling at \(14 and the preferred at \)65.
  4. Issued 200 shares of common and 50 shares of preferred for equipment. The common had a fair value of \(16 per share; the equipment has a fair value of \)6,500.

Instructions

Record the transactions listed above in journal entry form.

(Treasury Stock—Ethics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation’s cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?

What features or rights may alter the character of preferred stock?

The books of Conchita Corporation carried the following account balances as of December 31, 2017.

Cash \( 195,000

Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000

Common Stock (no-par value, 300,000 shares issued) 1,500,000

Paid-in Capital in Excess of Par—Preferred Stock 150,000

Treasury Stock (common 2,800 shares at cost) 33,600

Retained Earnings 105,000

The company decided not to pay any dividends in 2017.

The board of directors, at their annual meeting on December 21, 2018, declared the following: “The current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.

Instructions

a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b) Could Conchita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

The following note related to stockholders’ equity was reported in Wiebold, Inc.’s annual report.

On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on February 22 to shareholders of record on February 10. Accordingly, all numbers of common shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this stock split.

On the basis of amounts declared and paid, the annualized quarterly dividends per share were \(0.80 in the current year and \)0.75 in the prior year.

Instructions

  1. What is the significance of the date of record and the date of distribution?
  2. Why might Wiebold have declared a 3-for-2 for a stock split?
  3. What impact does Wiebold’s stock split have on (1) total stockholders’ equity, (2) total par value, (3) outstanding shares, and (4) book value per share?
See all solutions

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