Equity

Question 1

Stock dividends

Answer 1

Large stock dividend is more than 20-25% of the total shares outstanding. Recorded at par val of shares on declaration date.
DR Retained earnings $par val
CR Common stock div distrib. $par val

Small stock dividend is less than 20-25% of the total shares outstanding. Recorded at fair val of shares on declaration date.

DR Retained earnings $(#shares x $fair val of shares)
CR Common stock $par val
CR APIC $diff

Question 2

Equity accounts affected by cash dividends paid.

Answer 2

Divs are paid out of either current year earnings or retained earnings.

Share holders equity = capital stock acct + additional paid in capital acct + retained earnings acct.

Question 3

Treasury stock transactions

Answer 3

If using Par Method, then any treasury stock purchase/sales get reversed/added to the APIC acct.

If using Cost Method

Question 4

Incorporating a previous partnership or sole proprietorship.

Answer 4

Assets & liabs of the previous business are recorded at FMV in the new corporation. The difference between assets and liabs is contributed capital and the amount that exceeds the common stock issued to owners is put to Additional Paid in Capital.

Ex. Partnership is incorporating. Has inventory (bk val $200k, FMV $220k), fixed assets (bk val $800k, FMV $880k), liabs (bk & FMV $300k)

New corp assets 220k+880k = 1.1M total assets
Minus new corp liabs -300k
Contributed capital = 800k
Common stock issued - 300k (10k x 3 partners)
Additional paid in capital = 500k