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Chapter 15: Question 3IFRS (page 825)
Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders’ equity.
For reporting of stockholders’ equity presentation project will be closely checked.
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Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.
(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
Before Gordon Corporation engages in the treasury stock transactions listed on the next page, its general ledger reflects, among others, the following account balances (par value of its stock is \(30 per share).
Paid-in Capital in Excess of Par Common Stock Retained Earnings
Common Stock
\)99,000 \(270,000 \)80,000
Instructions
Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes.
(a) Bought 380 shares of treasury stock at \(40 per share.
(b) Bought 300 shares of treasury stock at \)45 per share.
(c) Sold 350 shares of treasury stock at \(42 per share.
(d) Sold 110 shares of treasury stock at \)38 per share.
Teller Corporation’s post-closing trial balance at December 31, 2017, was as follows.
TELLER CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2017 | ||
Dr. | Cr. | |
Accounts payable | \( 310,000 | |
Accounts receivable | \) 480,000 | |
Accumulated depreciation—building and equipment | 185,000 | |
Allowance for doubtful accounts | 30,000 | |
Bonds payable | 700,000 | |
Building and equipment | 1,450,000 | |
Cash | 190,000 | |
Dividends payable on preference shares—cash | 4,000 | |
Inventories | 560,000 | |
Land | 400,000 | |
Prepaid expenses | 40,000 | |
Retained earnings | 201,000 | |
Share capital—ordinary (\(1 par value) | 200,000 | |
Share capital—preference (\)50 par value) | 500,000 | |
Share premium—ordinary | 1,000,000 | |
Share premium—treasury | 160,000 | |
Treasury shares—ordinary at cost | 170,000 |
|
Totals | \(3,290,000 | \)3,290,000 |
On December 31, 2017, Teller had the following number of ordinary and preference shares.
Ordinary | Preference | |
Authorized | 600,000 | 60,000 |
Issued | 200,000 | 10,000 |
Outstanding | 190,000 | 10,000 |
The dividends on preference shares are \(4 cumulative. In addition, the preference shares have a preference in the liquidation of \)50 per share.
Instructions
Prepare the equity section of Teller’s statement of financial position at December 31, 2017.
(Stock and Cash Dividends) Earnhart Corporation has outstanding 3,000,000 shares of common stock with a par value of \(10 each. The balance in its Retained Earnings account at January 1, 2017, was \)24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of \(5,000,000. During 2017, the company’s net income was \)4,700,000. A cash dividend of \(0.60 a share was declared on May 5, 2017, and was paid June 30, 2017, and a 6% stock dividend was declared on November 30, 2017, and distributed to stockholders of record at the close of business on December 31, 2017. You have been asked to advise on the proper accounting treatment of the stock dividend.
The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows.
October 31, 2017 \)31
November 30, 2017 \(34
December 31, 2017 \)38
Instructions
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