Question

(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of \(10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2017, Mask purchased 1,000 shares of treasury stock for \)18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2017, Mask sold 500 shares of the treasury stock for \(20 per share.

In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was \)21 per share.

On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.

Instructions

1. How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet on December 31, 2017?
2. How should Mask account for the stock dividend, and how would it affect the stockholders’ equity at December 31, 2017? Why?
3. How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2017? Why?

Short answer

Mask Company should charge treasury stock on 15 August and deposit cash for the purchase. Mask must account for share dividends by debiting retained earnings per share for $21.

Step-by-step solution

Meaning of Dividend

A dividend can be a portion of profit and retained earnings that a company pays to its shareholders. When a company makes a profit and collects earned income, those profits can either be reinvested in the business or paid out to shareholders as profits.

Discuss mask account for the purchase and sale of the treasury stock and the presentation of Treasury stock in Balances sheet.

Mask Company must charge Treasury Offer for purchase on August 15, 2017, and deposit cash for the purchase (1,000 shares X $18 per share).

Mask Company must credit the Treasury offer for the toll taken (500 offer X $18 per share) by charging cash for the cost of offering (500 shares X $20 per share) for the deal of the Treasury offer on September 14, 2017. Shares), and accruing the share premium - Treasury for the sum of the cost of the offer received (500 offer X $2 per share).

The remaining Treasury offer (500 shares X $18 per share) must be independently displayed within the price segment of Mask's December 31, 2017 interpretation of the monetary position as an unrelated reduction of value. These proposals are considered to be continuing but not a part of the traditional proposals, considered extraordinary.

Explaining the effect of a stock dividend in the stockholders’ equity section.

Mask Company must account for share gains by charging hold profits for $21 per share (the market value of the offer in October 2010, the date of share gains), duplicated by the 1,950 shares circulated.

The Mask company must be duplicated by 1,950 shares such as crediting the share capital over the standard price of the traditional shares($10 per share) at that time, and the credit share premium - ordinary ($21 per share) standard honorarium of the showcase honor ($10 per share), duplicated by 1,950 shares circulated.

The increase in value does not change, but since it can be considered asmall share gain, capitalization of the profit held in proportionto the ad honors of additional shares coming from the share profit is allowed.

Explaining the reason for the effect of a stock dividend in the stockholders’ equity section.

Money to Mask Company by increasing the number of shares to 21,450 (20,000 - 1,000 + 500 + 1,950) at the December 20, 2010, statement date, by charging retained profits and crediting cash profits payable at $1 per share. Profit should be accounted for.

A cash dividend can be a spread for the corporation's shareholders. The risk for this distribution is brought at the confirmation date and maybe a current risk as it is due within one year (January 10, 2018). The effect of monetary gain on the statement of monetary position of Mask as of December 31, 2017, is an increase in current liabilities and a decrease in held profit.