Question

Roman Company had the following stockholders’ equity as of January 1, 2010.

Common Stock, $2 par value, 50,000 shares issued               $100,000

Paid-in capital in excess of par                                               $300,000

Paid-in capital Treasury Stock                                                 $   1,000

Retained earnings                                                                   $319,000

Total stockholder’s equity                                         $720,000

During 2010, the following transactions occurred:

Jan 31        Roman issued 5,000 shares of common stock at $10 per share.

Feb 25       Roman repurchased 1,900 shares of treasury stock at a price of $18 per share.

Mar 2         1,200 shares of treasury stock repurchased above were reissued at $16 per share.

Apr 22       500 shares of treasury stock repurchased above were reissued at $25 per share.

Apr 24       A 5% stock dividend was declared (the market price of the stock was $14)

Apr 25       The 5% stock dividend was distributed ( market price of the stock was still $14)

Required:

Prepare the journal entries to record the stock transactions in 2010, assuming Roman uses the cost method to account for treasury stock.                                        

How many shares of common stock were outstanding as of April 30, 2010?

Answer 1

• All working forms part of the answer
• Working note

A	Beginning no. of shares outstanding	50,000
B	Issued on Jan 31	5,000
C	Re Purchased	(1,900)
D	Re Issued	1,700
E = A+B+C+D	Shares outstanding for Stock Dividend	54,800
F	Stock Dividend Rate	5%
G = E x F	No. of shares as stock dividend	2,740
H = E + G	Shares outstanding on April 30	57,540

• Journal Entries

Date	General Journal	Debit	Credit	Working
Jan-31	Cash	$            50,000.00		5000 shares x $ 10
	Common Stock			5000 shares x $ 2 par
	Paid in Capital in excess of Par			5000 shares x $ 8
	(Common Stock issued)
Feb-25	Treasury Stock	$            34,200.00		[1900 shares x $18]
	Cash		$           34,200.00
	(Share repurchased)
Mar-02	Cash	$            19,200.00		1200 shares x $ 16
	Paid in Capital treasury Stock	$              1,000.00		Balance in account
	Retained Earnings	$              1,400.00		[21600 - 19200 -1000]
	Treasury Stock		$           21,600.00	1200 shares x $ 18 cost
	(Repurchased stock re issued)
Apr-22	Cash	$            12,500.00		500 shares x $ 25
	Treasury Stock		$             9,000.00	500 shares x $ 18 cost
	Paid in Capital treasury Stock		$             3,500.00	500 shares x $ 7
	(Repurchased stock re issued)
Apr-24	Dividends	$            38,360.00		[2740 shares x $ 14]
	Paid in Capital in excess of Par		$           32,880.00	[2740 shares x $ 12]
	Dividend payable		$             5,480.00	[2740 shares x $ 2 par]
	(Stock Dividend declared - See Working note)
Apr-25	Dividends Payable	$              5,480.00
	Common Stock		$            5,480.00
	(declared dividend distributed)

• Answer:

How many shares of common stock were outstanding as of April 30, 2010? = 57,540 shares [see working note at the top]