Chapter 15: Question 8Q (page 810)
Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.
The proportional and incremental methods are both used according to the different approaches performed by the company.
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Washington Company has the following stockholders’ equity accounts at December 31, 2017.
Common Stock (\(100 par value, authorized 8,000 shares) \)480,000
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 \(260,000net loss 2016 \)40,000 net loss 2017 \(800,000 net income
At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.
8% cumulative preferred stock, par value \)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
Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.
Instructions
Answer the questions in each of the following independent situations.
Joe Dumars Company has outstanding 40,000 shares of \(5 par common stock, which had been issued at \)30 per share. Joe Dumars then entered into the following transactions.
Instructions
Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).
# | Asset | Liabilities | Stockholders’ Equity | Paid-in Capital | Retained Earnings | Net Income |
1 | ||||||
2 | ||||||
3 |
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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