Problem D-I - Treasury Stock
The stockholders' equity section of Carey Co.'s balance sheet at December 31, 2012, was as follows:
Common stock--$10 par (authorized 1,000,000 shares,
issued and outstanding 600,000 shares) $ 6,000,000
Paid-in capital in excess of par 1,500,000
Retained earnings 3,250,000
$10,750,000
Instructions
Prepare journal entries (1, 2, and 4) and show proper disclosure (3) to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (Show computations.)
1. On January 4, 2013, having idle cash, Carey Co. repurchased 20,000 shares of its out-standing stock for $500,000.
2. On March 4, Carey sold 5,000 of these reacquired shares at $28 per share.
3. Show the proper disclosures in the stockholders' equity section of the balance sheet issued at the end of the first quarter, March 31, 2013. Assume net income of $100,000 during the first quarter.
4. On June 30, 2013 the firm sold 10,000 of the reacquired shares for $21 per share.
Cash Dividends
Bell Company has stock outstanding as follows: Common, $10 par value per share, 140,000 shares; Preferred, 5%; $100 par value per share, 8,000 shares. The Preferred is cumulative and participating up to an additional 4% of par; two years are in arrears (not including the current year); and the total amount of cash dividends declared for both classes of stock is $230,000.
Instructions
Prepare the entry for the dividend declaration, separating the dividend into the common and preferred portions.
*Problem D-II - Solution.
Retained Earnings 230,000
Dividends Payable, Preferred 136,000
Dividends Payable, Common 94,000
Computations:
Preferred Common Total
Arrears-$800,000 × 5% × 2 $80,000 $ 80,000
Preference-$800,000 × 5% 40,000 40,000
Common-$1,400,000 × 5% $ 70,000 70,000
Participating 2%* 16,000 24,000 40,000
$136,000 $ 94,000 $230,000
* [($230,000 - $190,000) ÷ ($600,000 + $1,400,000)] WHY IS $600,00 BEING USED HERE? I THOUGHT $800,000 SHOULD HAVE BEEN USED