Problem 13-58 Accounting for Stock Transactions Equity Financing: Problems LO2, LO3, LO9, LO11 Morris Corporation is publicly owned, and its shares are traded on a national stock exchange. M

Problem 13-58 Accounting for Stock Transactions

Equity Financing: Problems LO2, LO3, LO9, LO11 Morris Corporation is publicly owned, and its shares are traded on a national stock exchange. Morris has 16,000 shares of $2 stated value common stock authorized. Only 75% of these shares have been issued, and of the shares issued, only 11,000 are outstanding. On December 31, 2012, the Stockholders’ Equity section revealed that the balance in Paid-In Capital in Excess of Stated Value was $416,000, and the Retained Earnings balance was $110,000. Treasury stock was purchased at an average cost of $37.50 per share.

During 2013, Morris had the following transactions:

Jan. 15 Morris issued, at $55 per share, 800 shares of $50 par, 5% cumulative preferred stock; 2,000 shares are authorized.

Feb. 1 Morris sold 1,500 shares of newly issued $2 stated value common stock at $42 per share.

Mar. 15 Morris declared a cash dividend on common stock of $0.15 per share, payable on April 30 to all stockholders of record on April 1.

Apr. 15 Morris reacquired 200 shares of its common stock for $43 per share. Morris uses the cost method to account for treasury stock.

30 Morris paid dividends.

30 Employees exercised 1,000 options granted in 2008 under a fixed stock option plan. When the options were granted, each option entitled the employee to purchase one share of common stock for $50 per share. The share price on the grant date was $51 per share. On April 30, when the market price was $55 per share, Morris issued new shares to the employees. The fair value of the options at the grant date was $6.

May 1 Morris declared a 10% stock dividend to be distributed on June 1 to stockholders of record on May 7. The market price of the common stock was $55 per share on May 1 (before the stock dividend). (Assume that treasury shares do not participate in stock dividends.)

31 Morris sold 150 treasury shares reacquired on April 15 and an additional 200 shares costing $7,500 that had been on hand since the beginning of the year. The selling price was $57 per share.

June 1 Morris distributed the stock dividend.

Sept. 15 The semiannual cash dividend on common stock was declared, amounting to $0.15 per share. Morris also declared the yearly dividend on preferred stock. Both are payable on October 15 to stockholders of record on October 1.

Oct. 15 Morris paid dividends.

Net income for 2013 was $50,000. Assume that revenues and expenses were closed to a temporary account, Income Summary. Use this account to complete the closing process.

Instructions:

Compute the number of shares and dollar amount of treasury stock at the beginning of 2013.

Make the necessary journal entries to record the transactions in 2013 relating to stockholders’ equity.

Prepare the Stockholders’ Equity section of Morris Corporation’s December 31, 2013, balance sheet.

ATTACHMENT PREVIEW

Download attachment

13-58
Name:
DOUGLAS JIMENEZ
Enter the appropriate amounts/formulas in the blue-shaded cel s, or select from the drop-down lists.
The word “Wrong” wil appear to the left of incorrect entries.
1.
Number of shares and dollar amount of treasury stock at the beginning of 2013:
Authorized shares
16,000
Issued shares as a % of authorized shares
75%
Issued shares
12,000
Less: Outstanding shares
11,000
Treasury shares
1,000
Average purchase price per share of treasury stock
$37.50
Total dol ar amount of treasury stock
$37,500
2.
General Journal
Date
Account Title
Debit
Credit
Jan. 15
Cash
44,000
Preferred Stock
40,000
Paid-in Capital in Excess of Par – Preferred
4,000
Feb.
1
Cash
63,000
Common Stock
3,000
Paid-in Capital in Excess of Stated Value – Common
60,000
Mar. 15
Dividends (Retained Earnings)
1,875
Dividends Payable
1,875
Apr. 15
Treasury Stock
8,600
Cash
8,600
30
Dividends Payable
1,875
Cash
1,875
30
Cash
50,000
Paid-in Capital from Stock Options – Common Stock
6,000
Common Stock
2,000
Paid-in Capital in Excess of Stated Value – Common
54,000
May
1
Dividends (Retained Earnings)
66,500
Stock Dividends Distributable
2,660
Paid-in Capital in Excess of Stated Value – Common
63,840
31
Cash
19,950
Treasury Stock
13,950
Paid-In Capital from Treasury Stock
6,000
June
1
Stock Dividends Distributable
2,660
Common Stock
2,660
Sept. 15
Dividends (Retained Earnings)
4,247
Dividends Payable – Preferred
2,000
Dividends Payable – Common
2,247
Oct. 15
Dividends Payable – Preferred
2,000
Dividends Payable – Common
2,247
Cash
4,247
Dec. 31
Income Summary
Retained Earnings
31
Retained Earnings
Dividends (Retained Earnings)
3.
Stockholders’ Equity
Contributed capital:
5% preferred stock, $50 par, cumulative, 2,000 shares authorized, 800 shares outstanding
$40,000
Paid-in capital in excess of par – preferred stock
4,000
Common stock, $2 stated value, 16,000 shares authorized, 15,830 issued, 14,980 outstanding
31,660
Paid-in capital in excess of stated value – common stock
593,840
Paid in capital from treasury stock
6,000
Total contributed capital
$675,500
Retained earnings
Total contributed capital and retained earnings
Less: Treasury stock at cost (850 shares)
Wrong
(31,875)
Total stockholders’ equity

Leave a Comment