Problem Reporting Stockholders’ Equity

Stockholders’ Equity December 31, 2010 Common stock ($5 par, 500,000 shares authorized, 275,000 issued and outstanding)...$1,375,000 Paid-in capital in excess of par……………………550,000 Total paid-in capital……………………………$1,925,000 Unappropriated retained earnings……………….$1,335,000 Appropriated retained earnings……………………500,000 Total retained earnings……………………….1,835,000 Total stockholders’ equity………………………….$3,760,000 Part 1: Nilsson Corporation The Nilsson Corporation recorded several stockholders’ equity transactions during For Part 1, we need to record all necessary journal entries for these 2011 transactions that affect stockholders’ equity.

Stockholders’ Equity Transactions Nilsson Corporation’s Books Jan. 15Appropriated Retained Earnings………500,000 Retained Earnings…………………..500,000

Stockholders’ Equity Transactions Nilsson Corporation’s Books Jan. 15Appropriated Retained Earnings………500,000 Retained Earnings…………………..500,000

Cash received= 100,000 shares x $8 per share= $800,000 Common Stock (par value)= 100,000 shares x $5 par= $500,000 Excess of Par= 100,000 shares x ($8 - $5)= $300,000 Stockholders’ Equity Transactions

Mar. 3Cash………………………………………800,000 Common Stock………………………500,000 Paid-In Capital in Excess of Par……300,000 Stockholders’ Equity Transactions Nilsson Corporation’s Books Cash received= 100,000 shares x $8 per share= $800,000 Common Stock (par value)= 100,000 shares x $5 par= $500,000 Excess of Par= 100,000 shares x ($8 - $5)= $300,000

Remember:The day dividends are declared, they become a legal liability that the company must pay at a future date. 375,000 shares outstanding x $1.50 per share = $562,500 Stockholders’ Equity Transactions

May 18Dividends (Retained Earnings)………..562,500 Dividends Payable…………………..562,500 Stockholders’ Equity Transactions Nilsson Corporation’s Books Remember:The day dividends are declared, they become a legal liability that the company must pay at a future date. 375,000 shares outstanding x $1.50 per share = $562,500

Stockholders’ Equity Transactions Restricted Retained Earnings are not eligible for distribution as dividends.

June 19Retained Earnings………………………400,000 Appropriated Retained Earnings…..400,000 Stockholders’ Equity Transactions Nilsson Corporation’s Books Restricted Retained Earnings are not eligible for distribution as dividends.

Stockholders’ Equity Transactions On July 31, Nilsson Corporation paid the liability established on May 18.

July 31Dividends Payable………………………562,500 Cash…………………………………..562,500 Stockholders’ Equity Transactions Nilsson Corporation’s Books On July 31, Nilsson Corporation paid the liability established on May 18.

This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders. Stockholders’ Equity Transactions

This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders. Property Dividend:35,000 shares of Hampton x $13 per share= $455,000 Gain on Distribution:35,000 shares of Hampton x ($13-$9)= $140,000 Stockholders’ Equity Transactions

Nov. 12Property Dividends (Retained Earnings)…….455,000 Property Dividend Payable……………….315,000 Gain on Distribution of Property Dividend..140,000 This transaction will cause Nilsson to record a gain for the difference between the fair market value of the Hampton stock on the day the dividends are declared and the price Nilsson Corporation originally paid to acquire the Hampton stock. The gain to Nilsson is the same as if they had sold the Hampton stock for cash and then distributed this cash to their stockholders. Stockholders’ Equity Transactions Nilsson Corporation’s Books Property Dividend:35,000 shares of Hampton x $13 per share= $455,000 Gain on Distribution:35,000 shares of Hampton x ($13-$9)= $140,000

Revenues exceeded expenses by $885,000. Assume Nilsson used an Income Summary Account. Stockholders’ Equity Transactions

Dec. 31Income Summary………………………..885,000 Retained Earnings…………………..885,000 Stockholders’ Equity Transactions Nilsson Corporation’s Books Revenues exceeded expenses by $885,000. Assume Nilsson used an Income Summary Account.

Hampton Stock is distributed to its shareholders. Nilsson is not entitled to the gain in the share price that has occurred between the declaration date (November 12) and the distribution date (December 31). Stockholders’ Equity Transactions

Dec. 31Property Dividend Payable…………….315,000 Investment in Hampton Inc. Stock…315,000 Stockholders’ Equity Transactions Nilsson Corporation’s Books Hampton Stock is distributed to its shareholders. Nilsson is not entitled to the gain in the share price that has occurred between the declaration date (November 12) and the distribution date (December 31).

Part 2: Nilsson Corporation Stockholders’ Equity Common stock ($5 par, 500,000 shares authorized, 375,000 issued and outstanding)….$1,875,000 Computations $1,375,000 + $500,000 = $1,875,000

Stockholders’ Equity Common stock ($5 par, 500,000 shares authorized, 375,000 issued and outstanding)….$1,875,000 Paid-in capital in excess of par……………………850,000 Computations $550,000 + $300,000 = $850,000 Part 2: Nilsson Corporation

Computations Beginning retained earnings…………………………………….$1,335,000 Add: Reversal of appropriated retained earnings…………….500,000 Deduct: Appropriation of retained earnings…………………… (400,000) $1,435,000 Add: Net income…………………………………………………. 885,000 $2,320,000 Deduct: Dividends……………………………………………….(1,017,500) Retained earnings balance, December 31, ………….$1,302,500 Stockholders’ Equity Common stock ($5 par, 500,000 shares authorized, 375,000 issued and outstanding)...$1,875,000 Paid-in capital in excess of par……………………850,000 Total paid-in capital……………………………$2,725,000 Unappropriated retained earnings……………….$1,302,500 Part 2: Nilsson Corporation

Stockholders’ Equity December 31, 2011 Common stock ($5 par, 500,000 shares authorized, 375,000 issued and outstanding)...$1,875,000 Paid-in capital in excess of par……………………850,000 Total paid-in capital……………………………$2,725,000 Unappropriated retained earnings……………….$1,302,500 Appropriated retained earnings……………………400,000 Total retained earnings……………………….1,702,500 Total stockholders’ equity………………………….$4,427,500 Part 2: Nilsson Corporation

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