ACC 201 Lecture Notes - Lecture 11: Treasury Stock, Retained Earnings

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24 Apr 2017

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Treasury stock (shares repurchased by company) (se dec. ) Authorized shares maximum number of shares a company can issue. Advantages: dividends are decided in advance, preference in case of liquidation. Dividend = 8%*50=/share annually: issues 25,000 of par value stock for per share, purchases 3,000 c/s for per share (turns into treasury stock) sets new par value for the treasury stock: sells 2,000 shares of treasury stock at per share, sells 1,000 shares of treasury stock at per share. Liabilities: +425,000 (cash, -60,000 (cash, +52,000 (cash, +19,000 (cash) 4,000 shares at (4,000 shares total) 1,000 shares sold at ( pv) (3,000 t/s outstanding) 500 shares sold at ( pv) (2,500 t/s outstanding) 5,000 shares sold at ( pv) (45,000 p/s outstanding) Common stock: 50,000 + 125,000 35,000 + 122,500 + 75,000 = ,500.

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Shareholdersâ Equity Preferred stock, $100 par value;authorized, 330,000 shares; issued, 33,000 shares $3,300,000 Commonstock, $5 par value; authorized, 2,200,000 shares; issued, 440,000shares 2,200,000 Paid-in capital in excess of parâpreferred 99,000Paid-in capital in excess of parâcommon 935,000 Retained earnings2,200,000 $8,734,000 The following events occurred during 2013:Jan. 5 50,000 shares of authorized and unissued common stock weresold for $8 per share. Jan. 16 50,000 shares of authorized andunissued preferred stock were sold for $107 per share. April 190,000 shares of common stock were repurchased for the treasury ata price of $19 per share. Superior uses the cost method to accountfor treasury stock. Sept. 1 5,000 shares of preferred stock areissued in exchange for a piece of land. The land has an appraisedvalue of $542,000. The preferred stock currently trades on the NewYork Stock exchange at a price of $107 per share. Dec. 1 15,000shares of treasury stock are reissued at a price of $24 pershare

3. Calculate Superior's legal capital at December 31, 2013.Total legal capital : $

I need help with #3. Please explain how you got the answer.

The following selected accounts appear in the ledger of Parks Construction Inc. at the beginning of the current year:

Preferred 2% Stock, $75 par (100,000 shares authorized, 80,000 shares issued) $6,000,000

Paid-In Capital in Excess of ParâPreferred Stock 420,000

Common Stock, $8 par (5,000,000 shares authorized, 3,000,000 shares issued) 24,000,000

Paid-In Capital in Excess of ParâCommon Stock 1,850,000

Retained Earnings 115,400,000

During the year, the corporation completed a number of transactions affecting the stockholdersâ equity. They are summarized as follows:

Jan. 5 Issued 400,000 shares of common stock at $11, receiving cash.

Feb. 10 Issued 5,000 shares of preferred 2% stock at $90.

Mar. 19 Purchased 150,000 shares of treasury common for $10 per share.

May 16 Sold 80,000 shares of treasury common for $13 per share.

Aug. 25 Sold 20,000 shares of treasury common for $9 per share.

Dec. 6 Declared cash dividends of $1.50 per share on preferred stock and $0.06 per share on common stock.

31 Paid the cash dividends.

Journalize the entries to record the transactions. Refer to the Chart of Accounts for exact wording of account titles.

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Dividends on Preferred and Common Stock

Love Theatre Inc. owns and operates movie theaters throughoutNew Mexico and Utah. Love Theatre has declared the following annualdividends over a six-year period ending December 31 of each year:Year 1, $30,000; Year 2, $37,500; Year 3, $60,000; Year 4,$180,000; Year 5, $225,000; and Year 6, $270,000. During the entireperiod, the outstanding stock of the company was composed of25,000 shares of 3% preferred stock, $100 par, and100,000 shares of common stock, $25 par.

To calculate dividends, you need to understand thefollowing:

1) Preferred dividends are always paid before Common dividends.Whatever is left over after paying preferred stockholders goes tocommon stockholders.

2) Preferred dividends per share are calculated by multiplyingthe par value of the stock (per share) by the percentage shown onthe stock. For example, 5% Preferred, $100 par value would be paidannual dividends of $5 per share. (Sometimes preferred stock isshown with a dollar amount instead of a percentage. In this case,the dollar amount is the amount of annual dividend per share. Forexample, $3 Preferred, $100 par value would be paid annualdividends of $3 per share.)

3) The par value of common stock never enters into thecalculation of common dividends. Common stockholders simply receivewhatever dividends are left over after the preferred dividends arepaid (if there is anything left over). Common dividends aredistributed evenly to each share. For example, if there is $10,000left over after paying preferred dividends, and there are 100,000shares of common stock outstanding, each share of common stockwould receive $.10 in dividends.

4) Dividends are never paid on shares of treasury stock (stockthe company has purchased back from common stockholders).

Instructions:

1. Determine the total dividends and theper-share dividends declared on each class of stock for each of thesix years. If required, round your answers to the nearest cent. Ifthe amount is zero, please enter "0".

				PreferredDividends (25,000 shares)				CommonDividends (100,000 shares)
Year	TotalDividends			Total		Per Share		Total		Per Share
Year 1		$ 30,000	$		$		$		$
Year 2		37,500
Year 3		60,000
Year 4		180,000
Year 5		225,000
Year 6		270,000

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ACC 201 Lecture Notes - Lecture 11: Treasury Stock, Retained Earnings

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