ACC 231 Lecture Notes - Lecture 20: Stock Split, Dividend, Retained Earnings

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9 May 2018

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ACC 231

Lecture 20

Stock Review:

•Once the stock is traded in the secondary market there is no direct financial impact on the

corporation.

•Classes or type of stock

•Common stock-represents ownership (class A comes with voting rights)

•Preferred stock-receive dividends before common stockholders, dividends paid are specified

(for example $9/year), do not receive anything more. Similar to a loan in that payments are

specified but no rights to ownership. A dying breed.

Stocks Cont’d:

Stock Dividends:

•A distribution of the Corp.’s own stock to owners of the Corp.

•Affects only Stockholder’s Equity Accounts

•The value of Stockholder’s Equity does not change

•The distribution to each share holder is equal to the % of stock that shareholder currently

owns. For example if a shareholder owns .5% of the outstanding stock, if the Corp. issues a

stock dividend than that shareholder will receive .5% of the stock dividend.

Stock Splits:

•Stock splits are a little simpler in that we don’t have to do a journal entry we just increase the

number of shares issued and outstanding and reduce the par value of the stock.

•2 for 1 stock splits are common. Let’s say that Krispy Kreme has 10 million shares of $10 par

Common Stock outstanding and announces a stock split.

Before Split: Common Stock, $10 Par, 10m shares issued and outstanding.

After Split: Common Stock, $5 Par, 20m shares issued and outstanding.

Treasury Stock:

•The repurchase of a Corporation’s stock from shareholders.

•Recorded at cost

•Treasury Stock is listed beneath Retained Earnings

•A contra-equity account so has a debit balance

•A Corp purchases 50,000 shares of it’s own stock for $27/share.

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Document Summary

Similar to a loan in that payments are specified but no rights to ownership. For example if a shareholder owns . 5% of the outstanding stock, if the corp. issues a stock dividend than that shareholder will receive . 5% of the stock dividend. Let"s say that krispy kreme has 10 million shares of par. Common stock outstanding and announces a stock split. Before split: common stock, par, 10m shares issued and outstanding. After split: common stock, par, 20m shares issued and outstanding. Treasury stock: the repurchase of a corporation"s stock from shareholders, recorded at cost, treasury stock is listed beneath retained earnings, a contra-equity account so has a debit balance, a corp purchases 50,000 shares of it"s own stock for /share. Selling treasury stock: the corp can sell the shares they repurchased, if sell above cost: for example sold 10,000 shares for that they had originally purchased for .

Related Questions

Selected transactions completed by Primo Discount Corporationduring the current fiscal year are as follows:

Jan.	9	Split the common stock The stock outstanding when a corporation has issued only oneclass of stock. 3 for 1 and reduced the par A dollar amount assigned to each share of stock. from $75 to $25 per share. After the split, there were 1,201,500common shares outstanding.
Feb.	28	Purchased 40,200 shares of the corporationâs own common stockat $27, recording the stock Shares of ownership of a corporation. at cost.
May	1	Declared semiannual dividends Distribution of a corporationâs earnings to stockholders. of $0.70 on 70,500 shares of preferred stock A class of stock with preferential rights over common stock. and $0.14 on the common stock to stockholders The owners of a corporation. of record on June 1, payable on July 10.
Jul.	10	Paid the cash dividends A cash distribution of earnings by a corporation to itsshareholders. .
Sep.	7	Sold 31,600 shares of treasury stock Stock that a corporation has once issued and thenreacquires. at $33, receiving cash.
Oct.	1	Declared semiannual dividends of $0.70 on the preferred stockand $0.14 on the common stock (before the stock dividend). Inaddition, a 2% common stock dividend A distribution of shares of stock to its stockholders. was declared on the common stock outstanding. The fair market valueof the common stock is estimated at $38.
Dec.	1	Paid the cash dividends and issued the certificates for thecommon stock dividend.

Journalize the transactions. If no entry is required, simplyskip to the next transaction. Refer to the Chart of Accounts forexact wording of account titles.

CHART OF ACCOUNTS

Primo Discount Corporation

General Ledger

	ASSETS
110	Cash
120	Accounts Receivable
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
151	Prepaid Insurance
181	Land
193	Equipment
194	Accumulated Depreciation-Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
226	Interest Payable
231	Cash Dividends Payable
236	Stock Dividends Distributable
241	Salaries Payable
261	Mortgage Note Payable

Paid-In Capital in Excess of Par-Common Stock

Paid-In Capital in Excess of Par-Preferred Stock

331

Paid-In Capital from Sale of Treasury Stock

Journalize the transactions. If no entry is required, simplyskip to the next transaction. Refer to the Chart of Accounts forexact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
515	Credit Card Expense
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Selling Expenses
534	Rent Expense
535	Insurance Expense
536	Office Supplies Expense
537	Organizational Expenses
562	Depreciation Expense-Equipment
590	Miscellaneous Expense
710	Interest Expense

skylouse705

During the current year, Marlene, Nancy and Olive formed a new SCorporation. Solely in exchange for stock, Marlene and Nancycontributed appreciated property, while Olive contributed services.The exchanges of Marlene and Nancy will be nontaxable if:

		Olive receives 30% of the stock
		Olive receives 80% of the stock
		Olive receives 15% of the stock
		Marlene and Nancy together receive 50% of the stock

In June of 2018, Alice acquired heronly machine for $30,000 to use in her business. The machine isclassified as 5-year property. Aliceâs maximum depreciation(including bonus) on the machine this year is:

		$30,000
		$12,000
		$6,000
		$18,000

Cactus Corporation, an S Corporation, had accumulated earningsand profits of $200,000 at the beginning of the tax year. Tex andShirley each own 50% of the stock. During the current year Cactushad $100,000 of ordinary income and distributed $10,000 to Tex and$10,000 to Shirley. What is Tex's taxable income for the currentyear?

		$10,000
		$0
		$100,000
		$50,000

Bristol Corporation was formed as an S Corporation on January 1,2014 and elected S corporation status at that date. Bristol has hadthe same 25 shareholders throughout its existence and has one classof stock. Bristol's S election will terminate if it:

		10% of the shareholders vote to revoke the election
		to purchase 10 shares
		Allows a variation in the voting rights of the stock
		Increases the number of shareholders to 125

On February 10, 2018, Ace Corporation, a new calendar yearcorporation, elected S corporation status and all shareholdersconsented to the election. There was no change in its shareholdersduring the current year. Ace met all eligibility requirements foran S corporation during the preelection portion of the year. Whatis the earliest date on which Ace can be recognized as an Scorporation?

		February 10, 2018
		January 1, 2019
		February 10, 2019
		January 1, 2018

In March of 2017 Frederick acquired an passenger automobile for$45,000 and used the automobile 85% for business. Themaximum depreciation deduction for 2017 is:

		$3,160
		$11,160
		$8,928
		$9,486

In August of 2017, Joseph acquires andplaces into services business equipment costing $300,000. Theequipment is classified as 5-year recovery property. No otheracquisitions are made during the year. Joseph elects to expense themaximum amount under Sec. 179. Josephâs total deductions for theyear are

		$60,000
		$500,000
		$100,000
		$300,000

For the current tax year, VBN, an S Corporation distributes$100,000 to its sole shareholder, Raymond. His basis in the stockwas $140,000 before the distribution. VBN had once been a regular CCorporation and had remaining accumulated earnings and profits(E&P) from those years of $70,000. However, VBN has no balancein its accumulated adjustment account. How should the distributionof $100,000 be handled?

$100,000 as a taxable distribution

$70,000 as a taxable dividend, and $30,000 has a non taxablereturn of capital

$50,000 as a taxable dividend, and $100,000 as a non taxablereturn of capital

$70,000 as a taxable dividend; and $30,000 as a capital gain

Stahl, an individual who owns 100% of Talon, an S corporation,had a basis of $50,000 at the first of the year. During the yearTalon reported the following: Ordinary Loss of $10,000; Municipalinterest income of $8,000, Long term capital gain of $4,000; andLong term capital loss of $9,000. What was Stahl's basis in Talonat year end?

		$56,000
		$65,000
		$53,000
		$43,000

Gross Receipts of $70,000; Tax Exempt Interest Income of $4,000;Dividends of $10,000; Supplies Expense of $3,000; and UtilitiesExpense of $1,500. What amount is the S Corporation's ordinarytaxable income?

		$75,500
		$79,500
		$70,000
		$65,500

Bob and Sam each owned 50% of Lostalot, an S Corporation. Bob'sbasis is $30,000 and Sam's basis is $15,000. The corporation hasoperating loss for the current year of $50,000. Howmuch loss can each shareholder deduct in the current year assumingthey materially participate in the business:

		Bob: $25,000; Sam: $15,000
		Bob: $0; Sam: $0
		Bob: $25,000; Sam: $25,000
		Bob: $30,000; Sam: $15,000

Terra Corporation, a calendar-yeartaxpayer, purchases and places into service in 2017 machinery witha 7-year life that cost $650,000. The mid-quarter convention doesnot apply. Terraâs taxable income for the year before the Sec. 179deduction is $700,000. What is Terraâs total maximum depreciationdeduction related to this property?

		$585,718
		$521,345
		$92,885
		$500,000

Identify which of the following statements is false.

		The PTI (previously taxed income) represents the balance ofundistributed net income which were already taxed.
		The AAA balance can be negative, but the shareholder's basis inthe S corporation stock cannot be less than zero.
		Tax exempt income increase the AAA and the basis of the Scorporation stock.
		An S Corporation may or may not have accumulated Earnings andProfits Elaine owns an unincorporated manufacturing business. In 2017,she purchases and places in service $600,000 of qualifying fiveyear equipment for use in her business. Her taxable income from thebusiness before any section 179 deduction is $100,000. Which of thefollowing statements is true?

Elaine cannot deduct any Section 179 deduction for 2017

Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $400,000 carryover to next year.

Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $500,000 carryover to the next year

Elaine can deduct $500,000 as a section 179 deduction in2017

Charles, an individual, owned 100% of the Alpha, an Scorporation. At the first of the year, Charles' basis in Alpha was$25,000. In the current year, Alpha realized ordinary income of$1,000; and a long term capital gain of $3,000. Alpha distributed$25,000 to Charles at the end of the year. What amount of the$25,000 is taxable to Charles?

		$0
		$7,000
		$1,000
		$25,000

Hi there

Please answer the below in 15 mins, urgent. tahnks in advance:

1.The Tom Root Corporation guarantees its product againstdefects for one year. In what year should the corporation reportthe warranty expense?

Select one:

a. The cost of warranty is included in the product's sellingprice, and therefore warranty expense is never recorded.

b. in the year the product is sold

c. Expense is not disclosed because of the Liability forWarranty.

d. in the year the product becomes defective and is repaired orreplaced

2.Financial accounting focuses on the specific needs of decisionmakers external to the organization. Which of the following wouldnot be an external user?

Select one:

a. Internal Revenue Service

b. Vice President - Marketing

c. banks

d. stockholders

When dividends are paid,

Select one:

a. total assets remain the same.

b. total assets will decrease.

c. total assets will increase.

d. stockholders' equity will increase.

The basic rights usually attached to shares of common stockinclude:

Select one:

a. the guaranteed right to receive dividend payments eachyear.

b. the right to determine CEO's pay rate.

c. the right to vote on the matter brought before the annualshareholder meeting.

d. all of the above.

Outstanding shares of stock are:

Select one:

a. shares of stock owned by unknown individuals.

b. issued shares that are still in circulation.

c. also called treasury shares.

d. authorized shares that have not yet been issued.

Par value:

Select one:

a. specifies the exact amount for which an individual share ofstock must be sold.

b. is the maximum amount for which a share of stock may besold.

c. establishes the minimum price for the stock when issued.

d. is an amount determined by the marketplace when shares ofstock are sold.

Which of the following would not be a source of informationabout the financial condition of a company?

Select one:

a. the auditor's report

b. the company's 10K

c. articles in the business press

d. All of the above are sources.

In making investment and lending decisions:

Select one:

a. there is no relationship between risk and rate of return.

b. alternatives with the highest return generally have thelowest risk.

c. alternatives with the highest risk are selected.

d. alternatives with the lowest return generally have the lowestrisk.

8.ith which of the following would creditors be mostconcerned?

Select one:

a. dividends

b. profitability

c. future security prices

d. none of the above

A fiscal year:

Select one:

a. is any twelve consecutive months.

b. ends on December 31.

c. always ends at the end of the month.

d. end on June 30.

10.

The key components in measuring income are:

Select one:

a. assets and liabilities.

b. revenue and liabilities.

c. retained earnings and expenses.

d. revenue and expenses.

e. expenses and assets.

f. revenue and assets.

11.Which of the following help(s) determine when a sale shouldbe included in the income statement?

Select one:

a. recognition principle

b. cost recovery principle

c. matching principle

d. Both a. and c.

12.

The recording of expenses in the same time period as the relatedrevenues is called:

Select one:

a. matching.

b. accuracy.

c. allocation.

d. recognition.

carminetrout975

ACC 231 Lecture Notes - Lecture 20: Stock Split, Dividend, Retained Earnings

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