The balance sheet of World Foods, at December 31, 2011, reported 100,000 shares

Question

The balance sheet of World Foods, at December 31, 2011, reported 100,000 shares of no-par common stock authorized, with 15,000 shares issued and a Common stock balance of $170,000. Retained earnings had a balance of $125,000. During 2012, the company completed the following selected transactions: 1) March 15-Purchased 13,000 shares of treasury stock at $5 per share. 2) April 30- Distributed a 30% stock dividend on the outstanding shares of common stock. The market value of common stock was $7 per share. 3) December 31-Earned net income of $109,000 during the year. Closed net income to Retained earnings. REQUIREMENTS: (1) Record the transactions in the general journal. (2) Prepare the stockholder's equity section of World Foods balance sheet at December 31, 2012.

Explanation / Answer

Journal entry :- 1) March 15-Purchased 13,000 shares of treasury stock at $5 per share. 15 Mar 12 Treasury Stock Dr 65000 Cash Cr 65000 2) April 30- Distributed a 30% stock dividend on the outstanding shares of common stock. The market value of common stock was $7 per share. (No of sahres o/s 15000-13000 = 2000. So 30% Stock Div = 30%*2000 = 600 shares) 30 Apr 12 Retained Earnings Dr 4200 Common Stock, no par (600 x $7) Cr $4200 3) December 31-Earned net income of $109,000 during the year. Closed net income to Retained earnings. 31 Dec 12 Net Income Dr 109000 Retained Earnings Cr 109,000 15000 Shares value is $170,000. So 2000 shares = 2000*170000/15000 = $22,667 Stockholders Equity: Common stock—No par value, 100,000 shares authorized, 15,600 shares issued and outstanding ($170,000+4200) $174,200 ------------------------------------------------------------- Total Paid-in Capital ......................... $174,200 retained earnings (125000+109000-4200) $229,800 ------------------------------------------------------------ Sub Total $404,000 Less : treasury stoc,at Cost (13000Shares@$5)$65,000 ---------------------------------------------------------------- Total Stockholders' Equity $339,000

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