M5 Assignment Module 5 Assignment Pearson Began 2012 With 30
M5 Assignmentmodule 5 Assignmentpearson Began 2012 With 30000 1 Com
Pearson began 2012 with 30,000 $1 common shares issued and outstanding. Paid in capital in excess of par was $25,000 and retained earnings were $175,000. Net income for 2012 was $22,000. Pearson Wood Supplies completed several transactions during 2012, including issuing shares, declaring dividends, declaring stock splits, issuing stock dividends, purchasing and selling treasury stock. The assignment requires recording these transactions in journal entries and preparing the statement of shareholders' equity for the year 2012.
Paper For Above instruction
This paper presents the journal entries for Pearson Wood Supplies' transactions during 2012 and the subsequent preparation of the statement of shareholders' equity. These financial activities reflect key corporate actions such as stock issuance, dividends, stock splits, stock dividends, treasury stock transactions, and their impact on shareholders’ equity.
Journal Entries for 2012 Transactions
1. On January 2, Pearson issued 10,000 shares of $1 par common stock at $10 per share. The journal entry records the issuance at the market value, recognizing the par value and excess paid-in capital:
- Debit: Cash, $100,000 (10,000 shares × $10)
- Credit: Common Stock, $10,000 (10,000 shares × $1 par)
- Credit: Paid-in Capital in Excess of Par, $90,000 (difference)
2. On January 6, Pearson declared dividends—a cash dividend on 5,000 shares of 5% $4 par preferred stock, and a $.20 per share dividend on 40,000 common shares. The total dividends are calculated as follows:
- Preferred stock dividend: 5,000 shares × 5% × $4 = $1,000
- Common stock dividend: 40,000 shares × $0.20 = $8,000
The journal entry on declaration date (January 6):
- Debit: Dividends—Preferred, $1,000
- Debit: Dividends—Common, $8,000
- Credit: Dividends Payable, $9,000
Payment occurs on January 20, with the following entry:
- Debit: Dividends Payable, $9,000
- Credit: Cash, $9,000
3. On March 15, Pearson declared a 2-for-1 stock split, doubling the number of common shares and halving the par value from $1 to $0.50. No journal entry is needed for stock splits; instead, the stock’s par value and number of shares are adjusted on the stock ledger.
4. On April 10, a 10% stock dividend was declared when the market price was $12. The company distributed additional shares equal to 10% of outstanding common shares (which, after the split, is 80,000 shares). The shares distributed: 8,000 shares.
The value of the dividend is: 8,000 shares × $12 = $96,000. The journal entry is:
- Debit: Stock Dividends, $96,000
- Credit: Common Stock Dividend Distributable, $4,000 (8,000 shares × $0.50 par)
- Credit: Additional Paid-in Capital, $92,000 (difference)
Upon declaration, the Stock Dividends account increases, and upon distribution, the common stock account increases accordingly.
5. On June 14, Pearson purchased 1,000 shares of treasury stock at $13 per share. The journal entry:
- Debit: Treasury Stock, $13,000
- Credit: Cash, $13,000
6. On December 22, Pearson sold 500 treasury shares for $15 per share. The journal entry:
- Debit: Cash, $7,500
- Credit: Treasury Stock, $6,500 (500 shares × $13 cost)
- Credit: Paid-in Capital from Treasury Stock, $1,000
Statement of Shareholders' Equity for 2012
| Component | Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total |
|---|---|---|---|---|---|---|
| Balance at January 1, 2012 | $0 | $30,000 | $25,000 | $175,000 | $(—) | $230,000 |
| Issuance of Stock | $0 | $10,000 | $90,000 | — | — | $100,000 |
| Dividends Declared | — | — | — | –$9,000 | — | –$9,000 |
| Stock Split Adjustment | — | — | — | — | — | — |
| Stock Dividend | — | — | — | Increase by $4,000 (par value) | — | — |
| Treasury Stock Purchased | — | — | — | — | –$13,000 | –$13,000 |
| Treasury Stock Sold | — | — | — | — | $1,000 | $1,000 |
| Balance at December 31, 2012 | $0 | $40,000 | $115,000 | $166,000 | –$12,000 | $309,000 |
The totals reflect the accumulated changes in shareholders' equity through issuances, dividends, stock splits, dividends, treasury stock transactions, and retained earnings adjustments. The precise figures depend on detailed calculations considering all transactions and their effects on account balances.
Conclusion
Recording the transactions of Pearson Wood Supplies accurately impacts the financial statements and shareholders' equity reporting significantly. Proper journal entries ensure transparency and compliance with accounting standards. The statement of shareholders' equity offers a comprehensive view of the company's equity structure over the year, demonstrating how issuance, dividends, stock splits, stock dividends, and treasury stock transactions influence the overall financial health and ownership distribution.
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