Problem 13-64
Reporting Stockholders’ Equity
Stockholders’ EquityDecember 31, 2010
Common stock ($5 par, 500,000 sharesauthorized, 275,000 issued and outstanding)... $1,375,000
Paid-in capital in excess of par…………………… 550,000Total paid-in capital…………………………… $1,925,000
Unappropriated retained earnings ………………. $1,335,000Appropriated retained earnings…………………… 500,000
Total retained earnings………………………. 1,835,000
Total stockholders’ equity…………………………. $3,760,000
Part 1: Nilsson Corporation
The Nilsson Corporation recorded several stockholders’ equity transactions during 2011.
For Part 1, we need to record all necessary journal entries for these 2011 transactions that affect stockholders’ equity.
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Jan. 15 Appropriated Retained Earnings……… 500,000Retained Earnings………………….. 500,000
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Jan. 15 Appropriated Retained Earnings……… 500,000Retained Earnings………………….. 500,000
Cash received = 100,000 shares x $8 per share = $800,000Common Stock (par value) = 100,000 shares x $5 par = $500,000Excess of Par = 100,000 shares x ($8 - $5) = $300,000
Stockholders’ Equity Transactions
Mar. 3 Cash……………………………………… 800,000Common Stock……………………… 500,000Paid-In Capital in Excess of Par…… 300,000
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Cash received = 100,000 shares x $8 per share = $800,000Common Stock (par value) = 100,000 shares x $5 par = $500,000Excess of Par = 100,000 shares x ($8 - $5) = $300,000
Remember: The day dividends are declared, they become a legal liability that the company must pay at a future date.
375,000 shares outstanding x $1.50 per share = $562,500
Stockholders’ Equity Transactions
May 18 Dividends (Retained Earnings)……….. 562,500Dividends Payable………………….. 562,500
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Remember: The day dividends are declared, they become a legal liability that the company must pay at a future date.
375,000 shares outstanding x $1.50 per share = $562,500
Stockholders’ Equity Transactions
Restricted Retained Earnings are not eligible for distribution as dividends.
June 19 Retained Earnings……………………… 400,000Appropriated Retained Earnings….. 400,000
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Restricted Retained Earnings are not eligible for distribution as dividends.
Stockholders’ Equity Transactions
On July 31, Nilsson Corporation paid the liability established on May 18.
July 31 Dividends Payable……………………… 562,500Cash………………………………….. 562,500
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
On July 31, Nilsson Corporation paid the liability established on May 18.
This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders.
Stockholders’ Equity Transactions
This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders.
Property Dividend: 35,000 shares of Hampton x $13 per share = $455,000Gain on Distribution: 35,000 shares of Hampton x ($13-$9) = $140,000
Stockholders’ Equity Transactions
Nov. 12 Property Dividends (Retained Earnings) ……. 455,000Property Dividend Payable ………………. 315,000Gain on Distribution of Property Dividend.. 140,000
This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders.
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Property Dividend: 35,000 shares of Hampton x $13 per share = $455,000Gain on Distribution: 35,000 shares of Hampton x ($13-$9) = $140,000
Revenues exceeded expenses by $885,000. Assume Nilsson used an Income Summary Account.
Stockholders’ Equity Transactions
Dec. 31 Income Summary……………………….. 885,000Retained Earnings………………….. 885,000
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Revenues exceeded expenses by $885,000. Assume Nilsson used an Income Summary Account.
Hampton Stock is distributed to its shareholders. Nilsson is not entitled to the gain in the share price that has occurred between the declaration date (November 12) and the distribution date (December 31).
Stockholders’ Equity Transactions
Dec. 31 Property Dividend Payable……………. 315,000Investment in Hampton Inc. Stock… 315,000
Stockholders’ Equity Transactions
Nilsson Corporation’s Books
Hampton Stock is distributed to its shareholders. Nilsson is not entitled to the gain in the share price that has occurred between the declaration date (November 12) and the distribution date (December 31).
Part 2: Nilsson CorporationStockholders’ Equity
Common stock ($5 par, 500,000 sharesauthorized, 375,000 issued and outstanding)…. $1,875,000
Computations
$1,375,000 + $500,000 = $1,875,000
Stockholders’ Equity
Common stock ($5 par, 500,000 sharesauthorized, 375,000 issued and outstanding)…. $1,875,000
Paid-in capital in excess of par…………………… 850,000
Computations
$550,000 + $300,000 = $850,000
Part 2: Nilsson Corporation
ComputationsBeginning retained earnings……………………………………. $1,335,000Add: Reversal of appropriated retained earnings……………. 500,000Deduct: Appropriation of retained earnings…………………… (400,000)
$1,435,000Add: Net income…………………………………………………. 885,000
$2,320,000Deduct: Dividends………………………………………………. (1,017,500)Retained earnings balance, December 31, 2011..…………. $1,302,500
Stockholders’ Equity
Common stock ($5 par, 500,000 sharesauthorized, 375,000 issued and outstanding)... $1,875,000
Paid-in capital in excess of par…………………… 850,000Total paid-in capital…………………………… $2,725,000
Unappropriated retained earnings ………………. $1,302,500
Part 2: Nilsson Corporation
Stockholders’ EquityDecember 31, 2011
Common stock ($5 par, 500,000 sharesauthorized, 375,000 issued and outstanding)... $1,875,000
Paid-in capital in excess of par…………………… 850,000Total paid-in capital…………………………… $2,725,000
Unappropriated retained earnings ………………. $1,302,500Appropriated retained earnings…………………… 400,000
Total retained earnings………………………. 1,702,500
Total stockholders’ equity…………………………. $4,427,500
Part 2: Nilsson Corporation
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