E11-2 Reporting Stockholders Equity and Determining Dividend Policy [LO 11- The

Question

E11-2 Reporting Stockholders Equity and Determining Dividend Policy [LO 11- The following information applies to the questions displayed below. Incentive Corporation was authorized to issue 12.000 shares of common stock, each with a $2 par value. During its first year, the following selected transactions were completed: a. Issued 7,000 shares of common stock for cash at $30 per share. b. Issued 3,000 shares of common stock for cash at $33 per share. References Section Break E11-2 Reporting Stockholders Equity and Determining Dividend Policy [LO 11-2, LO 1-3] 0.37 points E11-2 Part1 Required: 1. Complete the table below, indicating the account, amount, and direction of the effect for the above transactions. (Enter any decreases to account balances with a minus sign.) Liabilities Assets

Explanation / Answer

Answer 1. Assets = Liabilities + Shareholders' Equity a. Cash          210,000 Common Stock            14,000 Paid in Capital in excess of par          196,000 b. Cash            99,000 Common Stock              6,000 Paid in Capital in excess of par            93,000 Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. a. Cash                                                            Dr.          210,000    To Common stock            14,000    To Paid in Capital in excess of par          196,000 (record the issue of common stock) b. Cash                                                            Dr.            99,000    To Common stock              6,000    To Paid in Capital in excess of par            93,000 (record the issue of common stock) Answer 3. Incentive Corporation Balance Sheet (Partial) At Dec -31 Stockholders' Equity Contributed Capital: Common Stock - Issued 10,000 Shares, Par Value $2 per share            20,000 Paid in Capital in excess of par          289,000 Total Contributed capital          309,000 Retained Earnings                  200 Total Stock holders' Equity          309,200 Answer 4. Incentive Corporation has a balance of only $350 in Retained Earnings, which, in most cases, would preclude the payment of dividends (because state laws often restrict dividends to the balance in Retained Earnings). Dividends are a distribution of earnings to the owners, so in the absence of significant earnings, dividends should not be paid.

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