Problem 3-Shareholders Equity Presented below is information related to NewCo Co

Question

Problem 3-Shareholders Equity Presented below is information related to NewCo Corp shareholder transactions during 2017: On January 1, the company was formed, and was authorized to issue 150,000 shares of $5 par value common stock. On January 2, 45,000 shares were issued for $12 per share. on April 15, NewCo issued and distributed a 3% stock dividend, when the shares were valued at $15 per share. On June 30, NewCo declared a cash dividend of $0.40, payable to the shareholders of record on July 15, to be paid on July 25. On August 2, the company purchases 1,550 shares of the common stock outstanding at $9 per share and retires the shares. On December 3, NewCo issued a 2:1 stock split. 1. 2. 3, 4. 5. 6. Instructions (a) Prepare the general journal entries necessary to record these transactions. Identify each transaction by the date, and if no entry is required, write "No Entry." (b) How many shares were outstanding as of December 31, 2017.

Explanation / Answer

(a).

Date

Accounts Title & Explanation

Debit

Credit

Januray 1

“No Entry”

January 2

Cash (45000 * $12)

$540000

     Common Stock (45000 * $5)

$225000

     Paid in capital excess of par-common

$315000

(For recording issue of common stock)

April 15

Retained earnings (1350 * $15)

$20250

     Common stock (1350 * $5)

$6750

     Paid in capital excess of par-common (1350 * $10

$13500

(For recording issue of stock dividends 45000 * .03)

June 30

Retained earnings (46350 * $0.40)

$18540

     Cash dividend payable

$18540

(For recording cash dividend payable on 46350 shares @ $0.40)

July 25

Cash dividend payable

$18540

      Cash

$18540

(For recording payment of cash dividend)

August 2

Treasury stock (1550 * $9)

$13950

     Cash

$13950

(For recording purchase of common stock)

Common stock (1550 * $5)

$7750

Paid in capital excess of par-common (1550 * $4)

$6200

     Treasury stock (1550 * $9)

$13950

(For recording retirement of shares)

December 3

“No entry”

Memorandum:

2 for 1 stock split increase the number of shares of common stock outstanding from 44,800 Shares to 89,600 Shares and reduced the par value from $5 to $2.5 Per share.

(b).

Number of Shares outstanding as of December 31, 2017 will be calculated as follow;

(45000 shares + 1350 shares – 1550) = 44800 * 2 = 89600 shares

Date

Accounts Title & Explanation

Debit

Credit

Januray 1

“No Entry”

January 2

Cash (45000 * $12)

$540000

     Common Stock (45000 * $5)

$225000

     Paid in capital excess of par-common

$315000

(For recording issue of common stock)

April 15

Retained earnings (1350 * $15)

$20250

     Common stock (1350 * $5)

$6750

     Paid in capital excess of par-common (1350 * $10

$13500

(For recording issue of stock dividends 45000 * .03)

June 30

Retained earnings (46350 * $0.40)

$18540

     Cash dividend payable

$18540

(For recording cash dividend payable on 46350 shares @ $0.40)

July 25

Cash dividend payable

$18540

      Cash

$18540

(For recording payment of cash dividend)

August 2

Treasury stock (1550 * $9)

$13950

     Cash

$13950

(For recording purchase of common stock)

Common stock (1550 * $5)

$7750

Paid in capital excess of par-common (1550 * $4)

$6200

     Treasury stock (1550 * $9)

$13950

(For recording retirement of shares)

December 3

“No entry”

Memorandum:

2 for 1 stock split increase the number of shares of common stock outstanding from 44,800 Shares to 89,600 Shares and reduced the par value from $5 to $2.5 Per share.

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