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Chapter 13: Q18RQ (page 707)
What is a stock split?
A stock split is a rise in the number of issued and outstanding shares of stock combined with a proportionate decrease in the par value of the stock.
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Question: Accounting for the purchase and sale of treasury stock
Discount Furniture, Inc. completed the following treasury stock transactions in 2018:
Dec. 1 Purchased 1,900 shares of the company’s \(1 par value common stock as treasury stock, paying cash of \)5 per share.
15 Sold 200 shares of the treasury stock for cash of \(8 per share.
20 Sold 1,000 shares of the treasury stock for cash of \)1 per share. (Assume the balance in Paid-In Capital from Treasury Stock Transactions on December 20 is $2,400.)
Requirements
2. How will Discount Furniture, Inc. report treasury stock on its balance sheet as of December 31, 2018?
What is a corporation?
Journalizing stock issuance and cash dividends and preparing the stockholders’ equity section of the balance sheet
C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, \(150 par value cumulative preferred stock, and 140,000 shares of \)3 par value common stock. During the first month, C-Mobile completed the following transactions:
Oct. 2 Issued 18,000 shares of common stock for a building with a market value of \(260,000.
6 Issued 650 shares of preferred stock for \)160 per share.
9 Issued 14,000 shares of common stock for cash of \(84,000.
10 Declared a \)13,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.
25 Paid the cash dividend.
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of C-Mobile’s balance sheet at October 31, 2018. Assume C-Mobile’s net income for the month was $95,000.
Computing earnings per share, price/earnings ratio, and rate of return on common stockholders’ equity
Gullo Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income \( 18,900 \) 24,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets \( 285,000 \) 200,000
Paid-In Capital:
Preferred Stock—11%, \(9 Par Value; 60,000 sharesauthorized, 10,000 shares issued and outstanding\) 90,000 \( 90,000
Common Stock—\)1 Par Value; 45,000 sharesauthorized, 30,000 shares issued and outstanding
30,000 30,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 51,000 42,000
Total Stockholders’ Equity \( 185,000 \) 176,000
Learning Objectives 3, 4, 6
2. Retained Earnings Dec. 31,
2018 \(218,280
Requirements
1. Compute Gullo Company’s earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.
2. Compute Gullo Company’s price/earnings ratio for 2018. Assume the company’s market price per share of common stock is \)9. Round to two decimals.
3. Compute Gullo Company’s rate of return on common stockholders’ equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.
How does authorized stock differ from ouststanding stock?
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