【正文】 in timing and amount of payment than does the payment of dividends. Further, it may not create an expectation of higher dividends in the future. Finally, it can demonstrate management’s confidence in the prospects for the pany.1018 Treasury stock is not an asset because it is a reduction of stockholders’ equity. Treasury stock is acquired by distributing cash or other assets to shareholders. It arises from a return of assets previously contributed by shareholders.1019 Although the specific accounting for transactions in the pany’s own stock may vary from pany to pany, one rule is paramount. Any difference between the acquisition price and resale price of treasury stock is never reported as a loss, expense, revenue, or gain in the ine statement. Why? A corporation’s own capital stock is part of its capital structure. It is not an asset of the corporation. Nor is stock intended to be treated like merchandise for sale to customers at a profit. Therefore, changes in a corporation39。 1, shares = 165。62 1, = 165。55,0942. In the United States, par value is usually small in relation to the issue price of mon shares. For Kawasaki Heavy Industries, the par value is 165。77 per share.Payment: Dividends payable 139,724 Cash 139,724 To record payment of cash dividends.1037 (10 min.) Cash 80,000 Common stock 8,000 Additional paidin capital 72,000 To record issue of 4,000 shares upon exercise of options to acquire them $20 per share. The managers have options on stock that has a value of 4,000 $40 = $160,000. The gain is $80,000, since they must pay $80,000 to acquire the shares. This substantial economic benefit results from a significant rise in the stock price over 3 years. Proponents of stock options would say that managers had worked hard at the pany and being rewarded appropriately for the benefits the pany had experienced. Critics would ask whether the whole economy and the stock market had doubled during these 3 years and, if so, would argue that managers had benefited from that general improvement.1038 (15 min.) Because the par value of the stock increased by 50%, from $8,802,000 to $13,203,000, Dean Foods had a 3for2 stock split or a 50% stock dividend. The classic idea of a stock split has been to issue a number of shares in exchange for each share of stock now outstanding. Thus a 3for2 split of a $30par stock would mean that a shareholder would receive three $20par shares for each two $30par shares exchanged. This entails no formal change in the total dollar balance of mon stock. As a practical matter, panies often acplish such a split via a 50% “stock dividend.” Dean Foods used the 50% stock dividend device, thereby automatically issuing one additional share for each two shares outstanding. This necessitated charging retained earnings at par for the total additional shares issued because the par value was not reduced as it often is for a stock split. This way of obtaining a split has a great attraction because it does not involve the bother and expense of exchanging certificates. “Stock dividends” of 25% or more are essentially stock splits and should be accounted for as such. However, even though a stock dividend requires a reduction of the balance in Retained Earnings and an increase in Common Stock, total stockholders’ equity is unaffected. In substance, there is no important difference between the two ways of acplishing stock splits. Thus, Dean’s accounting does not conflict with the definition of a stock split—all shareholders receive additional shares without paying any additional cash and thereby maintain their percentage ownership of the pany.1039 (5–10 min.) 1. A reverse stock split, like a regular stock split, does not affect any of the account balances. Only the number of shares and the par value (which is not shown by QED) are changed.QED EXPLORATION, INC. Stockholders’ equity: Common stock, 3,000,000 shares authorized, 2,353,000 shares issued $ 287,637 Additional paidin capital 3,437,547 Retained earnings 2,220,895 Less treasury stock, at cost, 101,755 shares (305,250) Total stockholders’ equity $5,640,8292. Since the number of shares is reduced by a factor of ten, the value of each share should be ten times higher. This is one motivation for the reverse split, to increase the market value of each share. These issues are not discussed at length in the text, but the subsequent discussion could ask, why is this desirable? Two reasons may be worth discussing. Some investors avoid, or are prohibited from trading in shares valued below some threshold, for example, $1. Some stock exchanges, such as the NYSE, require minimum prices to remain listed for trading.A more subtle point relates to the transactions costs investors face. Brokers’ missions may be based on a bination of number of shares and price per shares. Higher priced shares may produce lower missions for a given percentage ownership of the firm. In a similar vein, the bid/ask spread is often an eighth or a quarter of a point. This cost is incurred per share. A reverse split reduces the number of shares involved in a $5,000 or $10,000 investment and thus may reduce transaction costs.1040 (10 min.)1. Retained Earnings 3,289,898 Dividends Payable 3,289,898 To record $.34 cash dividend declaration on 10/28/2009. $.34 (9,755,480 – 79,310) = $3,289,8982. Retained earnings 33,176,718 Common stock 73,726 Additional paidin capital 33,102,992 To record 10% stock dividend. 10% (7,397,133 – 24,529) $ = $33,176,7183. 1995: 100 = 110 1998: 110 = 165 2003: 165 = 2005: = 2006: = Normally partial shares are paid in cash so an equally good answer is: 2003: 181 2005: 181 = 199 2006: 199 = 2181041 (5–10 min.)1. Trea