Accounting, Analysis, and Principles
On January 1, 2014, Agassi Corporation had the following stockholder’s equity accounts.
Common stock ($10 par value, 60,000 shares issued and outstanding) ___ $600,000
Paid-in-capital in excess of par – common stock _____________________ $500,000
Retained earnings _____________________________________________ $620,000
During 2014, the following transactions occurred.
Jan 15 – Declared and paid a $1.05 cash dividend per share to stockholders.
Apr 15 – Declared and paid a 10% stock dividend. The market price of the stock was $14 per share.
May 15 – Reacquired 2,000 common shares at a market price of $15 per share
Nov 15 – Reissued 1,000 shares held in treasury at a price of $18 per share.
Dec 31 – Determined that net income for the year was $370,000.
(1) Accounting: Journalize the above transactions. (Include entries to close net income to Retained earnings.) Determine the ending balances for Paid-in-capital, Retained earnings, and stockholders’ equity.
(2) Analysis: Calculate the payout ratio and return on common stock equity.
(3) Principles: R. Federer is examining Agassi’s financial statements and wonders whether the “gains” or “losses” on Agassi’s treasury stock transactions should be included in income for the year. Briefly explain whether, and the conceptual reasons why, gains or losses on treasury stock transactions should be recorded in income.