【正文】 retained earnings. If the shares are to be held only temporarily, they are listed as treasury stock and deducted from stockholders’ equity in total, and individual parts of stockholders’ equity are not reduced.1016 No. To retire shares, a pany must pay the market price per share.1017 There are many reasons a pany might buy back its own stock. It might be the most efficient way to distribute excess cash to shareholders, especially after considering tax consequences. It also allows more flexibility 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。 189。 4,000 = $Note that the book value is lower than the market value. This is typical. The shareholders are paying for earning power rather than for assets. 1044 (15–25 min.) The dividends payable item is not part of stockholders’ equity.ROSELLI CORPORATIONStatement of Stockholders’ EquityDecember 31, 20X86% cumulative preferred stock, $40 par value, callable at $42, authorized 100,000 shares, issued and outstanding,100,000 shares $4,000,000Common stock, $ par value, authorized million shares, issued million shares of which 60,000 shares are in the treasury 3,000,000Additional paidin capital: Preferred $1,000,000 Common 9,000,000 10,000,000*Retained earnings 12,000,000 Subtotal $29,000,000Deduct: Cost of 60,000 shares of mon stock reacquired and held in treasury (4,000,000)Total stockholders’ equity $25,000,000* Many presentations would not show the detailed breakdown of par value and additional paidin capital for preferred and mon stocks. Preferred stock would be shown as the sum of par and additional paidin capital of $5,000,000. Similarly, mon would be $12,000,000.1045 (10–15 min.) You may wish to use a balance sheet equation to show the overall effects of each item. 1. 0 5. 0 8. – $1,000 2. 0 6. – $50,000 9. + $1,200 3. + $600,000 7. 0 10. + $ 800 4. 01046 (15 min.)1. 20X7 and 20X8 preferred dividends must be paid before any mon dividends can be paid. Dividends are not paid on treasury stock. Preferred dividends = .06 $10 (52,136 – 11,528) 2 = $48,730 Common dividends = $.04 (1,322,850 – 93,091) = $49,190 Retained earnings 48,730 Cash 48,730 To record the declaration and payment of preferred dividends for 20X7 and 20X8. Retained earnings 49,190 Cash 49,190 To record the declaration and payment of mon dividends of $.04 per share.2. Ending balance = Beginning balance + Net ine – Dividends = $2,463,951 + $400,000 – $48,730 – $49,190 = $2,766,031Retained Earnings48,730Balance 2,463,95149,190 400,000Balance2, 766,0311047 (15–20 min.)1. Note that a dividend reinvestment is not the same as a typical stock dividend. Retained earnings 2,480,000,000 Dividends payable 2,480,000,000 Declaration of dividends, $.40 6,200,000,000 shares. Dividends payable 2,480,000,000 Cash 2,232,000,000 Common stock 248,000,000 To record payment of cash (90% of $2,480,000,000) and issuance of 4,960,000 additional shares under automatic dividend reinvestment program. Amount of reinvestment: 10% ($2,480,000,000) $248,000,000 Price per share 247。 mon stock at $25 per share. The par value is $4 per share. Cash 5,000Dividend ine 5,000 To record receipt of cash dividends at $1 per share. Stock dividends: No journal entry, but a memorandum 。 100 = %3.Beginning retained earnings+Net ine–Preferred dividends–Common dividends=Ending retained earnings $ + $12 – $ – Common dividends = $69 Common dividends = $7 Using a Taccount, let X = Common dividends Retained EarningsBalance X12Balance69 X = $71043 (10 min.) Dollar amounts (except per share amount) are in thousands.Rate of return on mon equity = (Net ine – Preferred dividends) Average of (Total stockholders’ equity – Liquidating value of preferred stock) = ($2,400 – $400) 247。 Preferred Dividends they buy them from other investors in the market. Thus, what a shareholder pays is often quite different from his or her share of stockholders’ equity (book value per share). An individual investor’s return is best measured by dividends plus price increase divided by the price paid for the shares.1025 A mon stock with a market price of less than book value may not necessarily be an attractive investment. The forecasted earnings of the pany may be too low to justify a higher market price. The book value may not recognize a large contingent liability from a law suit. For example, a major uncertainty for tobacco panies relates to the possibility that lawsuits by former smokers will be successful. While the risk is real, the oute is far too uncertain to record on the books. Further, book value includes the original costs of assets, which may be far below