The Squash Company’s shareholders’ equity on January 1, 2015 was $3,125,500. Dur

Question

The Squash Company’s shareholders’ equity on January 1, 2015 was $3,125,500. During 2015, Squash Company reported the following: Declared cash dividends totaling $125,000; the dividends had not been paid as of December 31, 2015. Issued 10,000 shares of $5 par value common stock at $9 per share. Purchased 5,000 shares of its common stock for $9.75 per share; the shares are being held as treasury shares. Sold 1,500 shares of treasury stock for $9.25 per share. Declared and issued a stock dividend of 2,000 shares of $5 par value common stock; the market value of the common stock on the date of declaration was $10.25 per share. This was considered a “small stock dividend”.

REQUIRED:

(a) Prepare journal entries for the transactions above.

(b) Assume that net income for the year is $575,325. What was shareholders’ equity as of December 31, 2015?

Explanation / Answer

The journal entries are as follows:

__________

Part B)

The value of stockholder's equity is calculated with the use of following table:

Notes:

Stock dividend will have no impact on the stockholder's equity.

Account Titles Debit Credit Retained Earnings $125,000 Dividends Payable $125,000 (To record declaration of cash cdividends) Cash (10,000*9) $90,000 Common Stock (10,000*5) $50,000 Paid-in Capital in Excess of Par – Common Stock (10,000*4) $40,000 (To record issuance of common stock) Treasury Stock (5,000*9.75) $48,750 Cash $48,750 (To record purchase of treasury stock) Cash (1,500*9.25) $13,875 Additional Paid-in Capital – Treasury Stock/Retained Earnings (48,750 – 46,250) $750 Treasury Stock (1,500*9.75) $14,625 (To record sale of treasury stock) Retained Earnings (2,000*10.25) $20,500 Common Stock Dividend Distributable (2,000*5) $10,000 Paid-in Capital in Excess of Par – Common Stock (2,000*5.25) $10,500 (To record declaration of stock dividend) Common Stock Dividend Distributable (2,000*5) $10,000 Common Stock $10,000 (To record issuance of stock dividend)

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