Question

In: Accounting

Company H has one class of Common Stock – Class A. There are 15 million Class...

Company H has one class of Common Stock – Class A.

There are 15 million Class A shares and they each carry a Par Value of $ 1. The Class A shares were issued at a market price of $ 30 per share. The shares are publicly traded on the New York Stock Exchange.

  1. Show the Journal Entry for the issuance of the Class A shares.
  1. Company H proposes to buy land which does not have a specified fair value. It offers the land owner 100,000 shares when the stock price for Class A shares has risen to $ 50 per share. Assuming this arrangement is concluded show the journal entry that would be made.

  1. The company decides to have an active repurchase and reselling program for the Class A shares.
    1. 100,000 Class A shares are repurchased at a price of $ 40 each. Show the entry for this.

  1. Of those shares 50,000 are resold at a price of $45 each. Show the entry for this.

  1. Then 25,000 shares are resold at a price of $ 20 per share. Show the entry for this.

  1. After these three transactions:
    1. How many Shares are left in the Treasury Share account?

  1. What is the balance in the Treasury Share account?

  1. It is a Debit or Credit Balance?

Does this mean that Equity is increased or decreased to the extent of this final balance in the Treasury Share account?

Solutions

Expert Solution

All the amounts are specified in million for easier understanding.

1) The Class A shares were issued at a market price of $ 30 per share.

Share capital will always be shown at its par value of $1, balance $29 (ie. $30-$1) aill be treated as securities premium.

2) It offers the land owner 100,000 shares when the stock price for Class A shares has risen to $ 50 per share.

Since the fairvalue of asset is not know, asset will be recognized at fair value of shares issued. further as above share capital will always be shown at its par value of $1, balance $49 (ie. $50-$1) aill be treated as securities premium.

3) 100,000 Class A shares are repurchased at a price of $ 40 each.

Treasury stocks are recognised using cost method.

4) Of those shares 50,000 are resold at a price of $45 each. Show the entry for this.

Additional amount received from sale of treasury stocks are "additional paid in capital" amount.

5)Then 25,000 shares are resold at a price of $ 20 per share. Show the entry for this.

Treasury stocks sold, lower than purchase price is first adjusted to "additional paid in capital" and then to "retained earnings"

After these three transactions:

How many Shares are left in the Treasury Share account?

Shares left as treasury stock = Repurchased - Resold = 100,000 - 50,000 - 25,000 = 25,000 shares

What is the balance in the Treasury Share account?

Closing balance in treasury = $4 (from SI.3) - $2(from SI.4) - $1(from SI.5) = $1 million

It is a Debit or Credit Balance?

Treasury stocks have debit balance

Does this mean that Equity is increased or decreased to the extent of this final balance in the Treasury Share account?

This means that outstanding equity is decresed (ie. the shares available in the market)

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

McBean Company has outstanding 15 million shares of $3 par value common stock and 1.5 million...
McBean Company has outstanding 15 million shares of $3 par value common stock and 1.5 million shares of $5 par value preferred stock. The preferred stock has a 8% dividend rate. The company declares $9,000,000 in total dividends for the year. Preferred Dividends in arrears are $450,000. a. Compute the amount of dividends to be distributed to preferred shareholders. (Enter your answer in dollars and not in millions.) b. Compute the amount of dividends to be distributed to common shareholders....
A company has 14 million shares of common stock outstanding with a beta of 1.15 and...
A company has 14 million shares of common stock outstanding with a beta of 1.15 and a market price of $45 a share. There are 1000000 shares of 9 percent preferred stock outstanding valued at $80 a share. The 10 percent semi annual coupon bonds have a face value of $1000 and are selling at 92 percent of par. There are 280,000 bonds outstanding that mature in 15 years. The market risk premium is 12 percent., T-bills are yielding 4.5...
A company has 14 million shares of common stock outstanding with a beta of 1.15 and...
A company has 14 million shares of common stock outstanding with a beta of 1.15 and a market price of $45 a share. There are 1,000,000 shares of 9 percent preferred stock outstanding valued at $80 a share. The 10 percent semiannual coupon bonds have a face value of $1,000 and are selling at 92 percent of par. There are 280,000 bonds outstanding that mature in 15 years. The market risk premium is 12 percent, T-bills are yielding 4.5 percent,...
Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and...
Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Joe Jackson 400 Mike Jackson (Joe’s son) 200 Jane Jackson (Joe’s daughter) 200 Vinnie Price (unrelated) 200 Total 1,000 Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year of $500,000. During this year, the corporation made the following distributions to its shareholders: 03/31: Paid a dividend of...
15. Bates Corporation has issued common stock only. The company has been successful and has a...
15. Bates Corporation has issued common stock only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company's financial statements.                   Beginning inventory                                              $   482,000                   Purchases                                                               4,036,000                   Ending inventory                                                             ?                   Average accounts receivable                                    800,000                   Average common stockholders' equity                  3,500,000                   Sales (all on credit)                                                 5,000,000                   Net income                                                                385,000 Instructions Compute the following:          Accounts receivable turnover and days sales in receivables. (Check Figures:...
The company with the common equity accounts shown here has declared a stock dividend of 15...
The company with the common equity accounts shown here has declared a stock dividend of 15 percent at a time when the market value of its stock is $41 per share. Common stock ($1 par value) $ 395,000 Capital surplus 848,000 Retained earnings 3,740,800 Total owners' equity $ 4,983,800 What would be the number of shares outstanding, after the distribution of the stock dividend? (Do not round intermediate calculations.) New shares outstanding            {C} {C}{C} What would the equity...
Z-Sisters Corporation has one class of voting common stock, of which 1,000 shares are issued and...
Z-Sisters Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Shares Lourdes Vick 400 Anita Vick (Lourdes’s daughter) 200 Liz Vick (Lourdes’s daughter) 200 Cat Labrillazo (unrelated) 200 Total 1000 Z-Sisters Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year of $500,000. During this year, the corporation made the following distributions to its shareholders: 03/31: Paid a dividend...
Water Inc. reacquired 26,550 shares of its common stock The stock outstanding when a corporation has issued only one class of stock.
Water Inc. reacquired 26,550 shares of its common stockThe stock outstanding when a corporation has issued only one class of stock.at $67 per share. On September 6, Biscayne Bay Water Inc. sold 12,750 of the reacquired shares at $73 per share. The remaining 13,800 shares were sold at $64 per share on November 30.Required:A.Journalize the transactions of May 14, September 6, and November 30. Refer to the Chart of Accounts for exact wording of account titles.B.What is the balance in...
XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of...
XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of each stock is $25. They want to extend $3 Million through bond issuance at 10% interest rate. Financial analyst estimated $2 Million EBIT. The marginal tax rate is 35%. a) What would be the earning per share?
Company X has 2 million shares of common stock outstanding at a book value of $1...
Company X has 2 million shares of common stock outstanding at a book value of $1 per share. The stock is currently priced at $5.00 per share. The company also has $2 million in face value of debt, with exactly 15 years remaining until maturity and a coupon rate of 10% paid semiannually. The yield to maturity on the bonds is 12%. What is the weight of debt capital to be used in calculating the firm’s weighted average cost of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT