Recording Stock Dividends and Treasury Stock Transactions At the beginning of 20

Question

Recording Stock Dividends and Treasury Stock Transactions At the beginning of 2015, Thompson Service, Inc., showed the following amounts in the stockholders' equity section of its balance sheet: Stockholders' equity: Capital stock, $1 par value, 500,000 shares authorized, 382,000 issued and outstanding Total paid-in capital Total stockholders' equity . $ 382,000 . 4,202,000 $4,584,000 2,704,600 $7,288,600 Retained earnings . The transactions relating to stockholders' equity during the year are as follows 3 Declared a dividend of $1 per share to stockholders of record on January 31, payable on February 15 Paid the cash dividend declared on January 3 The corporation purchased 6,000 shares of its own capital stock at a price of $40 per share Reissued 4,000 shares of the treasury stock at a price of S44 per share Declared a 5 percent stock dividend to stockholders of record at June 15, to be distributed on June 30. The market price of the stock at June 1 was $42 per share. (The 2,000 shares remaining in the treasury do not participate in the stock dividend.) Jan. Feb. 15 Apr. 12 May June 9 1 June 30 Distributed the stock dividend declared on June 1 Aug. 4 Reissued 600 of the 2,000 remaining shares of treasury stock at a price of Dec. 31 The Income Summary account, showing net income for the year of $1,928,000 Dec. 31 The $382,000 balance in the Dividends account was closed into the Retained S37 per share was closed into the Retained Earnings account. Earnings account Instructions a. Prepare in general journal form the entries to record the above transactions b. Prepare the stockholders' equity section of the balance sheet at December 31, 2015. Use the format illustrated in Exhibit 12-6. Include a supporting schedule showing your computation of retained earnings at that date c. Compute the maximum cash dividend per share that legally could be declared at December 31, 2015, without impairing the paid-in capital of Thompson Service. (Hint: The availability of retained earnings for dividends is restricted by the cost of treasury stock owned.) EXHIBIT 12-6 Stockholders' Equity Section of Balance Sheet

Explanation / Answer

Date Accounts Title Dr Cr 3-Jan Cash Dividend $382,000 Dividend payable $382,000 15-Feb Dividend payable $382,000 Cash $382,000 12-Apr Treasury stock 240000 Cash (6000*40) 240000 9-May Cash (4000*44) 176000 Additional paid in capital-Tresury stock 16000 Treasury stock 160000 1-Jun Retained Eranings (19000*42) 798000 Stock dividend payable 19000 Additional paid in capital-Capital stock 779000 (no . Of shares 380000*5%) 19000 30-Jun Stock dividend payable 19000 Capital stock 19000 4-Aug Cash (600*37) 22200 Additional paid in capital-Tresury stock 1800 Treasury stock 24000 31-Dec Income summary 1928000 Retained Eranings 1928000 31-Dec Retained Eranings 382000 Cash dividend 382000 Stockholder Equity Capital stock 401000 Additional paid in capital-Capital stock 4981000 (4202000+779000) Additional paid in capital-Tresury stock 14200 Total paid in capital 5396200 Reatined eranings (2704600+1928000-382000-798000) 3452600 8848800 Less: treasury stock (1400*40) -56000 Total stockhodler equity 8792800 c) Maximum dividend per share 8.50 per share (3452600-56000)/(382000+19000-1400)

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