CA15-6 (Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par...

CA15-6 (Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2017, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2017, Mask sold 500 shares of the treasury stock for $20 per share.

In October 2017, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was $21 per share.

On December 20, 2017, Mask declared a $1 per share cash dividend, payable on January 10, 2018, to shareholders of record on December 31, 2017.

Instructions

(a)How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet at December 31, 2017?

(b)How should Mask account for the stock dividend, and how would it affect the stockholders' equity at December 31, 2017? Why?

(c)How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2017? Why?

I've found this answer on Chegg, but only once and I'm not sure but I think the person may have left off a part of (a). The question asks how to account for the stock on December 31 balance sheet, but I don't see that on the existing response.

Expert Solution

(a) In the balance sheet at December 31, 2017, the treasury stock of 500 shares which are held by the company shall be shown at their cost and paid in capital from sale of 500 shares shall be shown at $1,000

(b) stock dividend dosen't effect overall stockholders' equity because it decreases the retained earnings and increases the paid in capital, so the net impact on the stockholders' equity is NIL.

(c) cash dividend would reduce retained earnings and hence reduce stockholders' equity and increase cash dividends payable and hence increase current liabilities.

If you still have any query or need any clarification, kindly ask in comments.

ekkarill92 answered 1 year ago

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