Problem 3-Shareholders Equity Presented below is information related to NewCo Co
ID: 2567039 • Letter: P
Question
Problem 3-Shareholders Equity Presented below is information related to NewCo Corp shareholder transactions during 2017: 1. On January 1, the company was formed, and was authorized to issue 150,000 shares of $5 par value common stock On January 2, 45,000 shares were issued for $12 per share. On April 15, NewCo issued and distributed a 3% stock dividend, when the shares were valued at $15 per share. On June 30, NewCo declared a cash dividend of $0.40, payable to the shareholders of record on July 15, to be paid on July 25 On August 2, the company purchases 1,550 shares of the common stock outstanding at $9 per share and retires the shares. On December 3, NewCo issued a 2:1 stock split. 2. 3. 4. 5. 6. Instructions (a) Prepare the general journal entries necessary to record these transactions. Identify each transaction by the date, and if no entry is required, write "No Entry. (b) How many shares were outstanding as of December 31, 2017Explanation / Answer
Solution:
1) Journal Entries
Transaction
Date
Account Titles and Explanation
Debit
Credit
1)
Jan.1, 2017
No Entry is required
2)
Jan.2, 2017
Cash (45,000 Shares x $12)
$540,000
Common Stock (45,000 Shares x Par $5)
$225,000
Paid in Capital - Excess of part - Common
$315,000
3)
April.5, 2017
Retained Earnings (1350 Share *$15)
$20,250
Common Stock (1350 Shares * Par $5)
$6,750
Paid in Capital - Excess of part - Common
$13,500
(Number of Shares of stock dividend = 45,000*3% = 1,350 Shares)
4)
June.30, 2017
Retained Earnings (46350 Shares * $0.40)
$18,540
Cash Dividend Payable
$18,540
(Total Number of Shares = 1350 + 45000 = 46,350 Shares)
July.15, 2017
No Entry is required on record date
July.25, 2017
Cash dividend payable
$18,540
Cash
$18,540
5)
Aug.2, 2017
Treasury Stock (1550 Shares x $9)
$13,950
Cash
$13,950
On retirement
Common Stock (1550 Share x $5)
$7,750
Paid in Capital - Excess of par - Common
$6,200
Treasury Stock
$13,950
6)
Dec.3, 2017
Memorandum: A 2 for 1 stock split increase the number of shares of common stock outstanding from 44,800 Shares to 89,600 Shares and reduced the par value from $5 to $2.5 Per share. The new 44,800 Shares were distributed
Note : Common Stock Outstanding = 46,350 - 1550 Treasury = 44,800 Shares
2) Number of Shares outstanding as of December 31, 2017 = 89,600 Shares
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Transaction
Date
Account Titles and Explanation
Debit
Credit
1)
Jan.1, 2017
No Entry is required
2)
Jan.2, 2017
Cash (45,000 Shares x $12)
$540,000
Common Stock (45,000 Shares x Par $5)
$225,000
Paid in Capital - Excess of part - Common
$315,000
3)
April.5, 2017
Retained Earnings (1350 Share *$15)
$20,250
Common Stock (1350 Shares * Par $5)
$6,750
Paid in Capital - Excess of part - Common
$13,500
(Number of Shares of stock dividend = 45,000*3% = 1,350 Shares)
4)
June.30, 2017
Retained Earnings (46350 Shares * $0.40)
$18,540
Cash Dividend Payable
$18,540
(Total Number of Shares = 1350 + 45000 = 46,350 Shares)
July.15, 2017
No Entry is required on record date
July.25, 2017
Cash dividend payable
$18,540
Cash
$18,540
5)
Aug.2, 2017
Treasury Stock (1550 Shares x $9)
$13,950
Cash
$13,950
On retirement
Common Stock (1550 Share x $5)
$7,750
Paid in Capital - Excess of par - Common
$6,200
Treasury Stock
$13,950
6)
Dec.3, 2017
Memorandum: A 2 for 1 stock split increase the number of shares of common stock outstanding from 44,800 Shares to 89,600 Shares and reduced the par value from $5 to $2.5 Per share. The new 44,800 Shares were distributed
Note : Common Stock Outstanding = 46,350 - 1550 Treasury = 44,800 Shares
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