Corporations:
Stock Values, Dividends,
Treasury Stock, and
Retained Earnings
Chapter 20
20 - 1
Learning Objective 1
Calculating the book value of
preferred and common stock.
20 - 2
Learning Unit 20-1

Corporations often reserve the right to retire
or redeem preferred stock at a specific price.
This price is called redemption value.

Market value is the market value per share
in the stock market.
20 - 3
Learning Unit 20-1
Book value per share = Total stockholders’ equity
÷ Total shares outstanding
Book value preferred = Redemption value
+ Dividends in arrears
÷ Number of shares outstanding
Book value common = Stockholders’ equity
– Amount assigned to preferred
÷ Number of shares outstanding
20 - 4
Learning Unit 20-1
Stockholders’ Equity
Paid-in Capital:
Common Stock, $25 par value, 10,000 shares
authorized, issued, and outstanding
$ 250,000
Paid-in Capital in Excess of Par–Common
110,000
Total Paid-in Capital
$ 360,000
Retained Earnings
894,000
Total Stockholders’ Equity
$1,254,000
Book value per share: $1,254,000 ÷ 10,000 = $125.40
20 - 5
Learning Unit 20-1
Stockholders’ Equity
Paid-in Capital:
Preferred 7% stock, $100 par value, authorized
3,000 shares cumulative and nonparticipating,
2,000 shares issued and outstanding
$200,000
Paid-in Capital in Excess of Par–Preferred
10,000
Total Paid-in Capital, Preferred Stockholders$210,000
Redemption value
= $206,000
Dividends in arrears = $ 14,000
20 - 6
Learning Unit 20-1
Book value per share preferred:
$206,000 + $14,000 ÷ 2,000 = $110
Book value per share common:
$894,000 – 220,000 ÷ 10,000 = $67.40
20 - 7
Learning Objective 2
Journalizing entries to record
issuance of a cash dividend
and a stock dividend.
20 - 8
Learning Unit 20-2
There are three important dates
associated with the dividend process.
Date of declaration
Date of record
Date of payment
20 - 9
Learning Unit 20-2
On March 8, 200x, the board declares
a $2 cash dividend per share on the
5,000 shares issued and outstanding.
Accounts Affected
Retained Earnings
Category
SE
Dividends Payable Liability
Rules
Dr. 10,000
Cr. 10,000
20 - 10
Learning Unit 20-2
A stock dividend is a distribution of the
corporation’s own stock to shareholders.
 It is a transfer of retained earnings to
contributed capital.
 It does not affect total stockholders’ equity.

20 - 11
Learning Unit 20-2
Jesse Company, with 10,000 shares of $20 par
value common stock outstanding, declares a
10% stock dividend when the shares are
trading at $30.
How many shares are issued in the dividend?
 10,000 × 10% = 1,000 shares
20 - 12
Learning Unit 20-2
Retained Earnings
30,000
Common Stock –
Dividend Distributable
20,000
Paid-In Capital in Excess
10,000
Declaration of a 10% common stock dividend
20 - 13
Learning Unit 20-2

–
–
–
–
Results of a stock split:
increases the number of shares outstanding
reduces the par or stated value in proportion
increases stock prices in the market
dividends per share increased
20 - 14
Learning Objective 3
Journalizing the purchase
and sale of treasury stock.
20 - 15
Learning Unit 20-3
Treasury stock is the corporation’s own
shares of issued stock.
 Treasury stock has a debit balance.
 It is not an asset.
 The corporation buys the shares on the
stock market, or directly from shareholders.

20 - 16
Learning Unit 20-3
The stock is held in the treasury and used
for issuance in stock options plans, etc.
 Dividends are not paid on the treasury
stock.
 It is not outstanding.

20 - 17
Learning Unit 20-3
On June 1, 200x, Ashley Corporation
purchased 1,000 shares of its own $10 par
value common stock at $12 per share (5,000
shares are outstanding).
What is the journal entry?
 Treasury Stock—Common 12,000
Cash
12,000
Purchase of previously issued stock
20 - 18
Learning Unit 20-3
Stockholders’ equity (before purchase
of
treasury stock):
 Paid-in capital: common stock,
$10 par, 5,000 issued
$ 50,000
+ Paid-in capital in excess of par
30,000
= Total paid-in capital
$ 80,000
+ Retained earnings
60,000
= Total stockholders’ equity
$140,000

20 - 19
Learning Unit 20-3
After purchase of treasury stock:
 Common stock, $10 par, 5,000
issued, 4,000 outstanding
$ 50,000
+ Paid-in capital in excess of par
30,000
+ Retained earnings
60,000
= Subtotal
$140,000
– Treasury stock, 1,000 shares at cost
12,000
= Total stockholders’ equity
$128,000

20 - 20
Learning Unit 20-3
Treasury stock can be reissued at a price
above or below the cost of reacquiring
the stock.
 Excess of sales price over cost is credited
to Paid-in Capital from Treasury Stock.
 Assume that on July 8, Ashley Corporation
sells 100 shares of treasury stock at $15.

20 - 21
Learning Unit 20-3
Cash
1,500
Treasury Stock
1,200
Paid-In Capital from
Treasury Stock
300
Sold 100 shares of treasury stock
20 - 22
Learning Objective 4
Preparing a statement
of retained earnings.
20 - 23
Learning Unit 20-4
Retained earnings appropriation is the
amount of retained earnings that is not
available for dividends.
 No actual cash “set asides” are involved in
the appropriation of retained earnings.

20 - 24
Learning Unit 20-4
It can be noted in a memo entry or an actual
journal entry that debits Retained Earnings
and credits Appropriation (for a purpose).
 The restriction can be contractual or
voluntary.

20 - 25
Learning Unit 20-4
Statement of Retained Earnings
Beginning Retained Earnings
Less: Prior Period Adjustments
Error corrections
Net loss
Add: Net Income
Error corrections
Deduct: Dividends
Equals: Ending Retained Earnings
20 - 26
Learning Unit 20-4
Raymond Company
Statement of Retained Earnings
Year Ended December 31, 20x3
Retained Earnings, Jan. 1, 20x3
Less: Prior Period Adjustments:
Correction of 20x1 error
Retained Earnings, Jan, 20x3, corrected
Add: Net Income for 20x3
Total
Deduct: Dividends declared in 20x3
Retained Earnings, Dec. 31, 20x3
$350,000
12,000
$338,000
40,000
$378,000
25,000
$353,000
20 - 27
End of Chapter 20
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