Question

Context Corporation reported shareholders’ equity on December 31, 2013:

Common stock - $10 par value; 50,000 shares authorized 20,000 shares issued and outstanding....................... $200,000 Paid-in capital in excess of par value, common stock....... $30,000 Retained earnings...........................................$135,000

Transactions occured during the course of 2014.

December 31, 2014: Context Corporation's statement of equity.

Statement of equity
	20000 shares issued and outstanding	200000
	Paid in capital in exxess of par	30000
	Retained earnings	253250
	Total	483250
Less	Treasury stock (1250*20)	25000
	Total equity section	458250
	Retained earnings
	Beginning	135000
Add	Net income	194000
	Total	329000
Less	Cash dividend	73500	(36000+37500)
Less	Treasury stock	2250
	Ending retained earnings	253250

Provide a rationale between 200 and 300 words in length for buying. or not buying this stock based on the financial information presented above: Based on Earning per share, Price-Earning Ratio, Dividend Yield, Book Value per share.

Answer 1

Prepare all general journal entries to record the selected transactions:

To record the purchase of own stock:

Date	Account title & Explanation	Debit	Credit
Jan 1	Treasury stock (2,000 * $20)	$   40,000
	Cash		$   40,000
	(To record the purchase of own stock)

To recorded the declaration of dividend:

Date	Account title & Explanation	Debit	Credit
Jan 5	Dividend expense (18000*$2)	$   36,000
	Dividend payable		$   36,000
	(To recorded the declaration of dividend)

To record the payment of dividend:

Date	Account title & Explanation	Debit	Credit
Feb 28	Dividend payable	$   36,000
	Cash		$   36,000
	(To record the payment of dividend)

To record the treasury for loss:

Date	Account title & Explanation	Debit	Credit
Jul 6	Cash (750*$17)	$   12,750
	Additional paid-in stock	$     2,250
	Treasury stock (750*$20)		$   15,000
	(To record the treasury for loss )

To recorded the declaration of dividend:

Date	Account title & Explanation	Debit	Credit
Sep 5	Dividend expense (18,750*$2)	$   37,500
	Dividend payable		$   37,500
	(To recorded the declaration of dividend)

SHAREHOLDERS OF RECORD:

Date	Account title & Explanation	Debit	Credit
Sep 25	No ENTRY ON SHAREHOLDERS OF RECORD

To record the payment of dividend:

Date	Account title & Explanation	Debit	Credit
Oct 28	Dividend payable	$   37,500
	Cash		$   37,500
	(To record the payment of dividend)

To close the net income to retained earnings:

Date	Account title & Explanation	Debit	Credit
Dec 31, 2014	Income summary	$   194,000
	Retained earnings		$   194,000
	(To close the net income to retained earnings)

Prepare a stockholders’ equity section as of the close of business on December 31, 20X4:

C Corp.
Statement of retained earnings
For the year ended December 31, 2014
Retained earnings, December 31, 2013	$           135,000
Add: Net income	$          194,000
Earnings available for distribution	$          329,000
Less: Dividend	$          (73,500)
Retained earnings, December 31, 2014	$          255,500

Provide a rationale between 200 and 300 words in length for buying. or not buying this stock based on the financial information presented:

C Corp.
Partial balance sheet
For the year ended December 31, 2014
Stockholders' equity
Capital stock (18750*10)	$        187,500
Paid in capital in excess of par ($30,000 -$2,250)	$          27,750
Retained earnings	$        255,500
Treasury stock ($40,000 - $15,000)	$        (25,000)
	$        445,750
Total liability and stockholders' equity

Therefore, the book value of the total capital is $445,750 and outstanding common stock is 18,750. By dividing the book value of total capital by outstanding stock of 18,750, we can get book value of share $23.77. It is important to compare the Book value of share ($23.77) with market price of the stock to determine whether the share is overpriced or underpriced. Once, determining the over value or under value of the stock decision can be taken whether to buy or sell the stock.