Question

In: Accounting

create a scenario for 3 separate transactions that address the following issues as accounting journal entries...

create a scenario for 3 separate transactions that address the following issues as accounting journal entries

  1. Issue stock at an amount above par value
  2. Declare property dividend, using an existing asset which has increased in value.
  3. Repurchase shares to hold in Treasury and then reissue a portion of the shares for a different price.

Solutions

Expert Solution

1)
Account Titles Debit Credit
Corp. issues 5,000 shares of $10 par value common stock at $14 per share
Cash (5000 x 14) $           70,000
     Common stock (5000 x 10) $           50,000
     Paid-in Capital in Excess of Par Value (5000 x (14-10) $           20,000
If common stock is issued for an amount greater than par value, the excess should be credited to Paid-in Capital in Excess of Par Value.
2)
Company can issue  non-monetary dividend to its shareholders other than cash ..  The property dividend would be recorded against the current market price of the asset distributed, any increase and decrease in market value above or below the book value it would either incur profit or loss . The interpretation of market value of the distributed asset may force businesses to intentionally issue the property dividend to manipulate the taxable income.
The company originally acquired the marketable securities for $500,000, and they have a fair market value as of the date of dividend declaration of  $ 4,000,000.
Account Titles Debit Credit
Marketable Securities (4,000,000 - 500,000) $      3,500,000
                 Gain on Marketable Securities $      3,500,000
Debit Credit
Retained Earnings $      4,000,000
      Property Dividends Payable $      4,000,000
(on declaration)
Debit Credit
Dividends Payable $      4,000,000
         Marketable Securities $      4,000,000
distribution of the property dividend to shareholders
3)
The repurchased shares of stock are known as treasury stock.The shares in treasury stock may be reissued any time.
If treasury stock is reissued at a price above cost
Company reissues 1,000 shares out of its treasury stock at $110 per share purchased at $ 80 per share
Account Titles Debit Credit
Cash (110 x 1000) $    110,000.00
          Treasury Stock $      80,000.00
          Additional paid-in capital - Treasury (1000 x (110-80) $      30,000.00
If treasury stock is reissued at a price below cost:
Company reissues 1,000 shares out of its treasury stock at $80 per share purchased at $ 100 per share
Account Titles Debit Credit
Cash (80 x 1000) $      80,000.00
Additional paid-in capital - Treasury (1000 x (80-100) $      20,000.00
          Treasury Stock $    100,000.00

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