PRACTICE CASE Corporations: Retained earnings, dividends, treasury stock, and bo
ID: 2567368 • Letter: P
Question
PRACTICE CASE Corporations: Retained earnings, dividends, treasury stock, and book value (LC I stockholders' equity section of Susan Corporation as of December 31, 2010, follows: -5) Stockholders' Equity Paid-in capital Stock: Preferred stock, 10%cumulative, $50 par value, 50,000 shares $200,000 authorized, 4,000 shares issued Common stock, $1 par value; 400,000 shares authorized, 90,000 shares issued Total stock 290,000 Additional paid-in capital: Paid-in capital-excess over par value, common stock Total paid-in capital $450,000 Retained earnings Totai stockholders' equity $950,000Explanation / Answer
1. JOURNAL
Date
Account Description
Debit
Credit
2011
Feb. 7
Stock Dividends
94500
Common stock dividends Distributable
13500
Paid in capital in excess of par - common
81000
Mar. 14
Common stock dividends Distributable
13500
Common stock
13500
April. 19
Treasury stock
72000
Cash
72000
May. 9
Accumulated depreciation
25000
Retained earnings
25000
Oct. 5
Cash
24000
Treasury stock
18000
Paid in capital - Treasury
6000
Dec. 17
Cash dividends
29450
Dividend payable - common
9450
Dividend payable - Preferred
20000
Dec. 31
Retained earnings
34000
Income summary
34000
Dec. 31
Retained earnings
123950
Stock dividends
94500
Cash Dividends
29450
2. Stockholder's Equity
Paid in capital
Stock
Preferred Stock, 10% cumulative, $50 par value, 50,000 shares authorized, 4,000 shares issued
200000
Common stock, $1 par value; 400,000 shares authorized, 103,500 shares issued and 94,500 outstanding
103500
Total Stock
303500
Additional paid-in-capital
Paid-in-capital in excess of par - common stock
241000
Paid-in-capital - Treasury
6000
Total Additional paid in capital
247000
Total Paid in capital
550500
Retained Earnings
367050
Total Paid in capital and Retained Earnings
917550
Less: Tresury Stock
54000
Total Stockholder's equity
863550
3. Computation of book value per share of common stock
Common stock par value
103500
Paid-in-capital in excess of par - common stock
241000
Retained Earnings
367050
711550
Less: Treasury stock
54000
Balance available to common stockholders
657550
Common stock shares outstanding
94500
Book Value - per share
$6.96
4. The state laws require that retained earnings be restricted for the cost of treasury stock held. Hence the present cost of treasury stock $54,000 is restricted from retained earnings.
1. JOURNAL
Date
Account Description
Debit
Credit
2011
Feb. 7
Stock Dividends
94500
Common stock dividends Distributable
13500
Paid in capital in excess of par - common
81000
Mar. 14
Common stock dividends Distributable
13500
Common stock
13500
April. 19
Treasury stock
72000
Cash
72000
May. 9
Accumulated depreciation
25000
Retained earnings
25000
Oct. 5
Cash
24000
Treasury stock
18000
Paid in capital - Treasury
6000
Dec. 17
Cash dividends
29450
Dividend payable - common
9450
Dividend payable - Preferred
20000
Dec. 31
Retained earnings
34000
Income summary
34000
Dec. 31
Retained earnings
123950
Stock dividends
94500
Cash Dividends
29450
2. Stockholder's Equity
Paid in capital
Stock
Preferred Stock, 10% cumulative, $50 par value, 50,000 shares authorized, 4,000 shares issued
200000
Common stock, $1 par value; 400,000 shares authorized, 103,500 shares issued and 94,500 outstanding
103500
Total Stock
303500
Additional paid-in-capital
Paid-in-capital in excess of par - common stock
241000
Paid-in-capital - Treasury
6000
Total Additional paid in capital
247000
Total Paid in capital
550500
Retained Earnings
367050
Total Paid in capital and Retained Earnings
917550
Less: Tresury Stock
54000
Total Stockholder's equity
863550
3. Computation of book value per share of common stock
Common stock par value
103500
Paid-in-capital in excess of par - common stock
241000
Retained Earnings
367050
711550
Less: Treasury stock
54000
Balance available to common stockholders
657550
Common stock shares outstanding
94500
Book Value - per share
$6.96
4. The state laws require that retained earnings be restricted for the cost of treasury stock held. Hence the present cost of treasury stock $54,000 is restricted from retained earnings.
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