After reading the information on stockholder’s equity in Chapter 18 from your Intermediate Accounting text, use a Word or an Excel document to address the following problems:
- P 18-1, “Various Stock Transactions; Correction of Journal Entries,” page 1078.
- This problem tests your knowledge on the issuance of capital stock and correction of journal entries for stockholders’ equity.
- P 18-10, “Transactions Affecting Retained Earnings,” page 1082.
- This problem tests your knowledge of transactions affecting retained earnings.
Various stock transactions; correction of journal entries
During its first year of operations, the McCollum Corporation entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share.
Prepare the appropriate journal entries to record each transaction.
Issued 40 million common shares for $20 per share.
Issued 5,000 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $20 per share.
A new staff accountant for the McCollum Corporation recorded the following journal entries during the second year of operations. McCollum retires shares that it reacquires (restores their status to that of authorized but unissued shares).
Prepare the journal entries that should have been recorded for each of the transactions.
Transactions affecting retained earnings
• LO18–4 through LO18–8
Indicate by letter whether each of the transactions listed below increases (I), decreases (D), or has no effect (N) on retained earnings. Assume the shareholders’ equity of the transacting company includes only common stock, paid-in capital—excess of par, and retained earnings at the time of each transaction. (Some transactions have two possible answers. Indicate both.)
· N 1. Sale of common stock
· 2. Purchase of treasury stock at a cost less than the original issue price
· 3. Purchase of treasury stock at a cost greater than the original issue price
· 4. Declaration of a property dividend
· 5. Sale of treasury stock for more than cost
· 6. Sale of treasury stock for less than cost
· 7. Net income for the year
· 8. Declaration of a cash dividend
· 9. Payment of a previously declared cash dividend
· 10. Issuance of convertible bonds for cash
· 11. Declaration and distribution of a 5% stock dividend
· 12. Retirement of common stock at a cost less than the original issue price
· 13. Retirement of common stock at a cost greater than the original issue price
· 14. A stock split effected in the form of a stock dividend
· 15. A stock split in which the par value per share is reduced (not effected in the form of a stock dividend)
· 16. A net loss for the year