Homework SourseContext Corporation reported shareholders equity on December
Context Corporation reported shareholders’ equity on December 31, 2013:
Common stock - $10 par value; 50,000 shares authorized
20,000 shares issued and outstanding....................... $200,000
Paid-in capital in excess of par value, common stock....... $30,000
Retained earnings...........................................$135,000
Transactions occured during the course of 2014.
December 31, 2014: Context Corporation\'s statement of equity.
253250
Provide a rationale between 200 and 300 words in length for buying. or not buying this stock based on the financial information presented above: Based on Earning per share, Price-Earning Ratio, Dividend Yield, Book Value per share.
| Common stock - $10 par value; 50,000 shares authorized |
Solution
Prepare all general journal entries to record the selected transactions:
To record the purchase of own stock:
Date
Account title & Explanation
Debit
Credit
Jan 1
Treasury stock (2,000 * $20)
$ 40,000
Cash
$ 40,000
(To record the purchase of own stock)
To recorded the declaration of dividend:
Date
Account title & Explanation
Debit
Credit
Jan 5
Dividend expense (18000*$2)
$ 36,000
Dividend payable
$ 36,000
(To recorded the declaration of dividend)
To record the payment of dividend:
Date
Account title & Explanation
Debit
Credit
Feb 28
Dividend payable
$ 36,000
Cash
$ 36,000
(To record the payment of dividend)
To record the treasury for loss:
Date
Account title & Explanation
Debit
Credit
Jul 6
Cash (750*$17)
$ 12,750
Additional paid-in stock
$ 2,250
Treasury stock (750*$20)
$ 15,000
(To record the treasury for loss )
To recorded the declaration of dividend:
Date
Account title & Explanation
Debit
Credit
Sep 5
Dividend expense (18,750*$2)
$ 37,500
Dividend payable
$ 37,500
(To recorded the declaration of dividend)
SHAREHOLDERS OF RECORD:
Date
Account title & Explanation
Debit
Credit
Sep 25
No ENTRY ON SHAREHOLDERS OF RECORD
To record the payment of dividend:
Date
Account title & Explanation
Debit
Credit
Oct 28
Dividend payable
$ 37,500
Cash
$ 37,500
(To record the payment of dividend)
To close the net income to retained earnings:
Date
Account title & Explanation
Debit
Credit
Dec 31, 2014
Income summary
$ 194,000
Retained earnings
$ 194,000
(To close the net income to retained earnings)
Prepare a stockholders’ equity section as of the close of business on December 31, 20X4:
C Corp.
Statement of retained earnings
For the year ended December 31, 2014
Retained earnings, December 31, 2013
$ 135,000
Add: Net income
$ 194,000
Earnings available for distribution
$ 329,000
Less: Dividend
$ (73,500)
Retained earnings, December 31, 2014
$ 255,500
Provide a rationale between 200 and 300 words in length for buying. or not buying this stock based on the financial information presented:
C Corp.
Partial balance sheet
For the year ended December 31, 2014
Stockholders\' equity
Capital stock (18750*10)
$ 187,500
Paid in capital in excess of par ($30,000 -$2,250)
$ 27,750
Retained earnings
$ 255,500
Treasury stock ($40,000 - $15,000)
$ (25,000)
$ 445,750
Total liability and stockholders\' equity
Therefore, the book value of the total capital is $445,750 and outstanding common stock is 18,750. By dividing the book value of total capital by outstanding stock of 18,750, we can get book value of share $23.77. It is important to compare the Book value of share ($23.77) with market price of the stock to determine whether the share is overpriced or underpriced. Once, determining the over value or under value of the stock decision can be taken whether to buy or sell the stock.
| Date | Account title & Explanation | Debit | Credit |
| Jan 1 | Treasury stock (2,000 * $20) | $ 40,000 | |
|
| Cash | $ 40,000 | |
| (To record the purchase of own stock) |
