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Chapter 15: Question 28Q (page 810)
How are restrictions of retained earnings reported?
A debit is recorded for a restriction on retained profits. A deficit is defined as a debit balance in the Retained Earnings account.
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The term reserves is used under IFRS with reference to all of the following except:
(a) gains and losses on revaluation of property, plant, and equipment.
(b) capital received in excess of the par value of issued shares.
(c) retained earnings.
(d) fair value differences.
Ravonette Corporation issued 300 shares of \(10 par value common stock and 100 shares of \)50 par value preferred stock for a lump sum of \(13,500. The common stock has a market price of \)20 per share, and the preferred stock has a market price of $90 per share. Prepare the journal entry to record the issuance.
(Preemptive Rights and Dilution of Ownership) Wallace Computer Company is a small, closely-held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2017, was substantially as shown below.
Asset
Current assets \(22,000
Equipment (net) 450,000
\)472,000
Liabilities and Stockholders’ Equity
Current liabilities \(50,000
Common stock 250,000
Retained earnings 172,000
\)472,000
Additional authorized common stock of \(300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of \)100,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured.
Instructions
(Entries for Stock Dividends and Stock Splits) The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2017.
Common stock, \(10 par, 300,000 shares issued and outstanding \)3,000,000
Paid-in capital in excess of par—common stock 1,200,000
Retained earnings 5,600,000
Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.
Instructions
Prepare the appropriate journal entries for each of the following cases.
(Preferred Dividends) The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of \(100 par value, 8% preferred, and 5,000 shares of \)50 par value common.
Instructions
Assuming that the company has retained earnings of $90,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.
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