ABC Inc. has the following stockholders’ equity on January 1, 2018: Common stock
ID: 2402460 • Letter: A
Question
ABC Inc. has the following stockholders’ equity on January 1, 2018:
Common stock, 500,000 shares, $5 par… $2,500,000
Paid in capital in excess of par-common… $7,500,000
Treasury Stock, 50,000 shares… $1,100,000
Retained earnings… $6,000,000
Paid in capital – Share repurchase… $50,000
Throughout the year, ABC Inc. has made the following transactions:
January 7th
ABC Inc. acquires 20,000 shares when the market price was $24 per share as Treasury stock.
February 5th
Retires 30,000 shares when the market price was $21 per share.
March 19th
Reissues 50,000 shares of treasury stock at $25 per share. ABC Inc. uses the FIFO method.
April 28th
ABC Inc. decides to retire their remaining treasury stock when the market is $23 per share.
May 14th
Issues an additional 25,000 shares in exchange for a piece of equipment that has a fair market value of $500,000.
July 20th
ABC Inc. declares that there will be a two-for-one stock split
August 3rd
ABC Inc. declares a 10% stock dividend when the current market price is $25. There are fractional shares equivalent to 5,000 shares that will be paid in cash.
October 12th
A $1 cash dividend is declared. The date of record is October 20th, and the date of payment will be October 31st.
December 8th
A 40% stock dividend is issued.
Required:
Prepare the appropriate journal entries for each transactions.
How many shares are issued and outstanding at the end of 2018?
January 7th
ABC Inc. acquires 20,000 shares when the market price was $24 per share as Treasury stock.
February 5th
Retires 30,000 shares when the market price was $21 per share.
March 19th
Reissues 50,000 shares of treasury stock at $25 per share. ABC Inc. uses the FIFO method.
April 28th
ABC Inc. decides to retire their remaining treasury stock when the market is $23 per share.
May 14th
Issues an additional 25,000 shares in exchange for a piece of equipment that has a fair market value of $500,000.
July 20th
ABC Inc. declares that there will be a two-for-one stock split
August 3rd
ABC Inc. declares a 10% stock dividend when the current market price is $25. There are fractional shares equivalent to 5,000 shares that will be paid in cash.
October 12th
A $1 cash dividend is declared. The date of record is October 20th, and the date of payment will be October 31st.
December 8th
A 40% stock dividend is issued.
Explanation / Answer
Solution:
JOURNAL ENTRIES:
Date Particulars Debit Credit Jan-07 Treasury Stock 480,000 Cash 480,000 Feb-05 Common Stock 150,000 Contributed capital in excess of par 480,000 Cash 630,000 Mar-19 Cash 1,250,000 Treasury Stock 1,100,000 Paid in capital - Share repurchase 150,000 Apr-28 Common Stock 100,000 Contributed capital in excess of par 360,000 Paid in capital - Share repurchase 20,000 Treasury Stock 480,000 May-14 Equipment 550,000 Common Stock 125,000 Contributed capital in excess of par 425,000 Jul-20 No journal entry Aug-03 Retained earnings 2,375,000 Common Stock 225,000 Cash 125,000 Contributed capital in excess of par 2,025,000 Oct-12 Retained earnings 1,040,000 Cash 1,040,000 Dec-08 Retained Earnings 1,040,000 Common Stock 1,040,000