In: Accounting
Quonset, Inc. is a public company whose shares are actively traded in the over-the-counter market. The company’s stockholders’ equity account balances at December 31, year 1, are on the following tab.
During the year ended December 31, year 2, transactions and other information relating to Quonset’s stockholders’ equity were as follows:
On February 1, year 2, Quonset issued 13,000 shares of common
stock to Carson Co. in exchange for land. On the date issued, the
stock had a market price of $13 per share. The land had a carrying
value on Carson’s books of $140,000 and an assessed value for
property taxes of $95,000.
On March 5, year 2, Quonset purchased 21,000 of its shares to hold
as treasury stock at $12 per share. The shares were originally
issued at $13 per share. Quonset uses the cost method to account
for treasury stock. Treasury stock is permitted in Quonset’s state
of incorporation.
On March 15, year 2, Quonset purchased a portfolio of marketable
debt securities to be held as available-for-sale securities.
On June 5, year 2, Quonset declared a property dividend of
inventory. The inventory had a $65,000 carrying value and a $55,000
fair market value.
On July 1, year 2, Quonset declared and issued a 15% stock
dividend.
On December 5, year 2, Quonset declared a cash dividend of $1 per
share to all common stockholders of record on December 15, year 2.
The dividend was paid on January 5, year 3.
Net income for year 2 was $1,443,000.
At December 31, year 2, unrealized gain on the portfolio of
marketable debt securities purchased during the year was $95,000,
net of tax.
Common stock: $1 par value; 1,650,000 shares
authorized; 850,000 shares issued and outstanding
$850,000
Additional paid-in capital
3,100,000
Retained earnings
3,700,000
Total stockholders' equity
$7,650,000
Using the stockholders’ equity balances as of December 31, year
1, and the transactions and other information relating to Quonset’s
stockholders’ equity during year 2, complete the following
worksheet analysis of stockholders’ equity for year 2. Ignore the
effect of income taxes.
For each item in column A:
Enter in column B the effect (if any) on the number of Quonset shares issued and outstanding.
Enter in columns C through G the dollar amount effect (if any) on the appropriate equity account(s).
Total stockholders’ equity values at column H and ending balance in row 10 will automatically calculate based on your entries.
Enter increases to stockholders’ equity as positive numbers and decreases to stockholders’ equity as negative numbers. If there is no amount to enter in a particular shaded cell, enter a value of zero (0).
A |
B |
C |
D |
E |
F |
G |
H |
|
---|---|---|---|---|---|---|---|---|
1 |
Accounts | Number of shares issued and outstanding | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | Treasury stock | Total stockholders' equity |
2 |
Beginning Balances | 0 | ||||||
3 |
Issuance of shares for property | 0 | ||||||
4 |
Purchase of treasury stock | 0 | ||||||
5 |
Property dividends distributed | 0 | ||||||
6 |
Stock dividend issued | 0 | ||||||
7 |
Cash dividend | 0 | ||||||
8 |
Net income for the year | 0 | ||||||
9 |
Unrealized gain (loss) on marketable debt securities available for sale | 0 | ||||||
10 |
Ending Balances | 0 | 0 | 0 | 0 | 0 |
0 |
B | C | D | E | F | G | H | ||
A | ||||||||
1 | Accounts | Number of shares issued and outstanding | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | Treasury stock | Total stockholders' equity |
2 | Beginning Balances | 850,000 | $ 850,000 | $ 3,100,000 | $ 3,700,000 | $ 7,650,000 | ||
3 | Issuance of shares for property | 13,000 | $ 13,000 | $ 156,000 | $ 169,000 | |||
4 | Purchase of treasury stock | (21,000) | $ (252,000) | $ (252,000) | ||||
5 | Property dividends distributed | $ (55,000) | $ (55,000) | |||||
6 | Stock dividend issued | 126,300 | $ 126,300 | $ 126,300 | ||||
7 | Cash dividend | $ (968,300) | $ (968,300) | |||||
8 | Net income for the year | $ 1,443,000 | $ 1,443,000 | |||||
9 | Unrealized gain (loss) on marketable debt securities available for sale | $ 95,000 | $ 95,000 | |||||
10 | Ending Balances | 968,300 | $ 989,300 | $ 3,256,000 | $ 4,119,700 | $ 95,000 | $ (252,000) | 8208000 |
Notes: | ||||||||
1)On feb quonset issued 13000 shares of common stock in exchange of land | ||||||||
13000 shares * $13=$169000 | ||||||||
So issue sof 13000 * $1 is par value rest is additional paid in capital | ||||||||
so Common stock is $13000 and additional paid in capital is $156000(169000-13000) | ||||||||
2)Purchase of treasury stock | ||||||||
21000 shares * $12=$252000 | ||||||||
3)Purchase of marketable debt is not included in the equity balances above | ||||||||
4)so a property dividend would be done by taking the fair value of stock | ||||||||
and debiting the retianed earnings . So a decrease of $55000 is to be made from | ||||||||
retained earnings | ||||||||
5) A stock dividend of 15% | ||||||||
so we issue 842000*15%=126300 stock dividends | ||||||||
6)We pay cash dividends | ||||||||
a direct entry is made through retained earnings | ||||||||
Reatined earnings…Dr….$968300 | ||||||||
Cash………………..Cr…$968300 | ||||||||
7)we recognise net income through retaiend earnings-$1443000 | ||||||||
8)Increase in gain on the portfolio of marketable debt securities | ||||||||
of $95000 , this unrealsied gain with increase other comprehensive | ||||||||
income and thus increase stockholder's equity |