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Acc1002x Tutorial 10 Solutions

Dividends payable item is not part of stockholders' equity. Many presentations would not show the detailed breakdown of par value and additional paid-in capital for preferred and common stocks. 20X7 and 20X8 preferred dividends must be paid before any common dividends can be paid.

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122 views2 pages

Acc1002x Tutorial 10 Solutions

Dividends payable item is not part of stockholders' equity. Many presentations would not show the detailed breakdown of par value and additional paid-in capital for preferred and common stocks. 20X7 and 20X8 preferred dividends must be paid before any common dividends can be paid.

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John
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACC1002XFinancialAccounting

Semester2ofAcademicYear2014/2015
Tutorial#10SOLUTIONS
AssignedProblems:1044,1046,1057

10-44
The dividends payable item is not part of stockholders equity.
ROSELLI CORPORATION
Stockholders Equity Section of Balance Sheet
December 31, 20X8
6% cumulative preferred stock, $40 par value,
callable at $42, authorized 100,000 shares,
issued and outstanding,100,000 shares
Common stock, $2.50 par value, authorized
1.8 million shares, issued 1.2 million shares
of which 60,000 shares are in the treasury
Additional paid-in capital:
Preferred
Common
Retained earnings
Subtotal
Deduct: Cost of 60,000 shares of common
stock reacquired and held in treasury
Total stockholders equity
*

$4,000,000

3,000,000
$1,000,000
9,000,000

10,000,000*
12,000,000
$29,000,000
(4,000,000)
$25,000,000

Many presentations would not show the detailed breakdown of par value and additional
paid-in capital for preferred and common stocks. Preferred stock would be shown as the
sum of par and additional paid-in capital of $5,000,000. Similarly, common would be
$12,000,000.

10-46
1.

20X7 and 20X8 preferred dividends must be paid before any common dividends can
be paid. Dividends are not paid on treasury stock.
Preferred dividends
Common dividends

=
=
=
=

.06 $10 (52,136 11,528) 2


$48,730
$.04 (1,322,850 93,091)
$49,190

Dr. Cash Dividends - Preferred


48,730
Cr. Cash
48,730
To record the declaration and payment of preferred dividends for 20X7 and 20X8.
Dr. Cash Dividends - Common
49,190
Cr. Cash
49,190
To record the declaration and payment of common dividends of $.04 per share.

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2.

Ending balance

= Beginning balance + Net income Dividends


= $2,463,951 + $400,000 $48,730 $49,190
= $2,766,031
Retained Earnings
48,730
Balance
49,190

2,463,951
400,000

Balance

2, 766,031

10-57 Account balances and entries in millions.


1.

Dr. Treasury stock


Cr. Cash
To acquire 21.4 million shares

1,603
1,603

2.

$10,520 million + $1,603 million $11,676 million = $447 million.

3.

Dr. Treasury stock


Cr. Cash
To acquire 100,000 treasury shares @ 7.6 per share

7.6
7.6

January 2, 2009 Stockholders equity = $9,879 $7.6 = $9,871.4


4.

Dr. Cash
Cr. Treasury stock
Cr. Additional paid-in capital

9.0
7.6
1.4

3M might maintain an internal separation of its paid-in-capital and distinguish this as


capital from a treasury stock transaction. The journal entry assumes this is not true.
Many companies adopt a LIFO or FIFO cost flow assumption for treasury shares,
most often FIFO. The problem could be read to imply specific identification, but this
is rare.
5.

Dr. Cash
Dr. Additional paid-in capital
Cr. Treasury stock

5.0
2.6
7.6

Some companies divide Additional Paid-in Capital into several separate accounts that
identify different sources of capital, for example:
Additional paid-in capitalpreferred stock
Additional paid-in capitalcommon stock
Additional paid-in capitaltreasury stock transactions
A consistent accounting treatment would call for debiting only Additional Paid-in
CapitalTreasury Stock Transactions (and no other paid-in capital account) for the
excess of the cost over the resale price of treasury shares. If there is no balance in
such a paid-in capital account, the debit should be made to Retained Earnings. These
practices will vary across companies.

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