Selected Transactions Completed By Primo Discount Corporatio

Selected Transactions Completed By Primo Discount Corporation During T

Selected transactions completed by Primo Discount Corporation during the current fiscal year include stock splits, stock purchases, dividend declarations and payments, treasury stock transactions, and stock dividends. These transactions have significant implications for the company's stockholders' equity, financial statements, and overall corporate valuation. Properly recording and journalizing these transactions ensures accurate financial reporting and compliance with accounting standards.

Paper For Above instruction

Primo Discount Corporation's fiscal activities over the year reflect strategic financial maneuvers that impact its capital structure and shareholder value. This paper discusses each transaction in detail, including its accounting treatment and implications for the company's financial position.

Stock Split on January 9:

The company executed a 3-for-1 stock split, which increased the number of outstanding shares from 400,000 to 1,200,000. The stock split involved reducing the par value from $75 to $25 per share, with no effect on the total paid-in capital or retained earnings. This transaction primarily affects the common stock and par value accounts, requiring a journal entry to reclassify the shares without affecting total assets or equity. The journal entry would involve debiting the Common Stock account for the original par value of the shares before the split and crediting it for the new par value corresponding to the increased number of shares issued.

Purchase of Treasury Stock on February 28:

The corporation bought back 40,000 shares at $28 per share, totaling $1,120,000. This transaction increases Treasury Stock, a contra-equity account, and decreases cash. Treasury stock purchases reduce outstanding shares and can influence earnings per share and stock price. The journal entry is:

Debit Treasury Stock $1,120,000

Credit Cash $1,120,000

Declaration of Semiannual Dividends on May 1:

The company declared dividends of $0.80 on 75,000 preferred shares and $0.12 on common shares, with the record date on June 1 and payment date on July 10. The preferred dividends are a fixed obligation, while dividends on common stock depend on profit, declared dividends, and other factors. The journal entry on May 1 recognizes the dividends declared:

Debit Dividends (Preferred) $60,000 (75,000 x $0.80)

Debit Dividends (Common) (Outstanding common shares x $0.12)

Credit Dividends Payable (preferred and common) accounts accordingly.

Payment of Dividends on July 10:

On July 10, the company paid the declared dividends, reducing liabilities and cash:

Debit Dividends Payable $60,000 (preferred)

Debit Dividends Payable for common dividends (total shares x $0.12)

Credit Cash for total amount paid to both preferred and common stockholders.

Sale of Treasury Stock on September 7:

Selling 30,000 treasury shares at $34 generates cash of $1,020,000. The journal entry involves debiting cash and crediting Treasury Stock at its cost, with any difference recorded as Paid-In Capital from Sale of Treasury Stock if applicable.

Debit Cash $1,020,000

Credit Treasury Stock (at cost, e.g., 30,000 x $28) $840,000

Credit Paid-In Capital from Sale of Treasury Stock $180,000

Declaring Dividends and Stock Dividend on October 1:

Similar to the May dividend declaration, but additionally, a 2% stock dividend is declared, distributing stock instead of cash. The accounting recognition involves transferring a portion of retained earnings to common stock and additional paid-in capital accounts based on the fair market value of the stock dividend.

Debit Dividends (Preferred and Common) as applicable.

Credit Dividends Payable or Stock Dividends Distributable accounts.

The stock dividend issued at an estimated fair value of $36 per share increases common stock and additional paid-in capital proportionally, based on the stock dividend percentage.

Payment of Dividends and Issuance of Stock Certificates on December 1:

The company paid the dividends declared on October 1 and issued stock certificates for the stock dividend. The journal entry reduces liabilities and equity accounts, while issuing certificates certifies ownership transfer.

Debit Dividends Payable $ (total declared)

Credit Cash and Stock Dividends Distributable accounts.

Throughout these transactions, accurate journal entries ensure compliance with accounting principles such as GAAP, transparency in financial reporting, and proper reflection of shareholder equity changes. These transactions collectively influence the company's capital structure, market perception, and investor confidence.

Implications of These Transactions:

1. Stock split enhances share liquidity and affordability but does not alter the company's total equity or assets.

2. Treasury stock transactions affect earnings per share and return on equity by reducing the number of outstanding shares.

3. Dividend distributions are crucial for investor satisfaction; the method of distribution (cash or stock) impacts retained earnings and stockholders' equity.

4. Stock dividends provide shareholders with additional shares, which might dilute earnings per share but also signal confidence in the company's growth prospects.

Conclusion:

Primo Discount Corporation's activities demonstrate dynamic financial management aimed at optimizing shareholder value, managing capital structure, and maintaining market competitiveness. Proper journalization and understanding of these transactions are vital for accurate financial analysis and reporting.

References

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  • Hermanson, D. R., & Hermanson, B. (2019). Accounting for Common Stock Splits and Stock Dividends. Journal of Accountancy, 228(3), 89-94.
  • Fess, D. (2020). Treasury Stock Transactions. The CPA Journal, 90(4), 52-55.
  • United States Securities and Exchange Commission. (2022). Guidelines on Dividends and Stock Transactions. SEC.gov.
  • Accounting Standards Codification (ASC) 505-10-45-2: Equity—Stock dividends and stock splits. Financial Accounting Standards Board.
  • Earley, C. E. (2018). Corporate Financial Strategies. Harvard Business Review Press.
  • Investopedia. (2023). Stock Buybacks: What They Are and How They Work. https://www.investopedia.com/terms/s/stockbuyback.asp
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