Garber Corporation Had 40,000 Shares Of $10 Par Common Stock

Garber Corporation Had 40000 Shares Of 10 Par Common Stock Outstandi

Garber Corporation had 40,000 shares of $10 par common stock outstanding on January 1, 2016. On June 1, 2016 Garber purchased 5,000 shares of its own stock on the open market for $22 per share and held it as treasury stock. On October 1, 2016 Garber declared and issued a 10% stock dividend. The market value of Garber's stock was $24 per share on October 1. Garber's board of directors declared and paid a cash dividend of $57,750 on December 15, 2016. a) Prepare the journal entry for the treasury stock purchase. b) Prepare the journal entry for the stock dividend. c) Prepare the journal entry for the cash dividend.

Paper For Above instruction

Introduction

The financial transactions involving treasury stock purchases, stock dividends, and cash dividends are fundamental components of a company's shareholder equity management. These transactions affect the company's balance sheet, earnings, and overall financial standing. This paper systematically addresses three specific journal entries related to Garber Corporation's activities in 2016, providing detailed accounting procedures rooted in Generally Accepted Accounting Principles (GAAP).

Journal Entry for the Treasury Stock Purchase

On June 1, 2016, Garber Corporation purchased 5,000 shares of its own stock at $22 per share, which it classified as treasury stock. The treasury stock account is a contra-equity account, reducing total shareholders' equity. The purchase involves debiting the treasury stock account and crediting cash.

The calculation:

- Number of shares purchased: 5,000

- Purchase price per share: $22

- Total purchase cost: 5,000 shares * $22 = $110,000

Journal Entry:

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Debit: Treasury Stock $110,000

Credit: Cash $110,000

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This entry reflects the outflow of cash to acquire treasury shares, decreasing assets and equity accordingly.

Journal Entry for the Stock Dividend

On October 1, 2016, Garber declared a 10% stock dividend, distributing additional shares to shareholders. The company's total shares outstanding before the dividend were 40,000; thus, the dividend entailed issuing 4,000 new shares (10% of 40,000).

Because the market value-based method is common for stock dividends exceeding 25%, and here it is only 10%, the transfer is generally recorded at the fair market value at the date of the dividend. The market value per share on October 1 was $24.

- Number of new shares issued: 4,000

- Market value per share: $24

- Total value of stock dividend: 4,000 shares * $24 = $96,000

Journal Entry:

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Debit: Stock Dividends $96,000

Credit: Common Stock (par value) $40,000

Credit: Additional Paid-in Capital $56,000

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Explanation:

- The common stock account increases by the par value of the new shares issued (4,000 shares * $10 par = $40,000).

- The excess over par value ($96,000 - $40,000 = $56,000) is credited to Additional Paid-in Capital.

- The total value transferred from retained earnings is reflected through this entry.

Note: The actual retained earnings decrease is not explicitly recorded here because the journal reflects the distribution of stock dividends at fair value, resulting in a transfer from retained earnings to paid-in capital accounts.

Journal Entry for the Cash Dividend

On December 15, 2016, Garber declared and paid a cash dividend of $57,750. The dividend reduces retained earnings and cash.

Journal Entry:

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Debit: Retained Earnings $57,750

Credit: Cash $57,750

```

This classic entry decreases the company's cash assets and retained earnings, reflecting the dividend payout.

Conclusion

These journal entries encompass essential shareholder equity transactions for Garber Corporation. The treasury stock purchase decreases equity and assets, the stock dividend reallocates amounts between retained earnings and paid-in capital without affecting total assets, and the cash dividend reduces cash and retained earnings. Proper recording of these transactions ensures accurate financial reporting and compliance with GAAP.

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