Book 1 - Chapter 30

Par value per share decreases. Total par value is unchanged. Total shares outstanding increases.
Total shares issued increases. Total shares authorized is unchanged.

A stock dividend removes an amount from retained earnings and transfers that same amount
into paid-in capital. Therefore, the total stockholders’ equity is unchanged. More shares are
outstanding, but the value of the business itself has not changed. A stock split has no effect on
total stockholders’ equity because the total dollar value of stockholders’ equity is unaffected and
remains unchanged. The same amount of stockholders’ equity is simply being divided among
more shares of issued stock.

Date	Account	Post. Ref.	Dr.	Cr.

March	Treasury Stock		70,000
	Cash			70,000

May 3	Cash		54,000
	Treasury Stock			42,000
	Paid-in Capital in Excess of Par, Treasury Stock			12,000

June 28	Cash		26,000
	Paid-in Capital in Excess of Par, Treasury Stock		2,000
	Treasury Stock			28,000

	Analysis:
	On March 1, 5,000 shares × $14 = $70,000 cash paid.
	On May 3, 3,000 shares × $18 = $54,000 cash received. The cost of the treasury shares was 3,000 × $14 = $42,000. The additional $4 per share = $12,000 of additional paid in capital obtained.
	On June 28, 2,000 shares × $13 = $26,000 of cash received. The cost of the treasury shares was 2,000 × $14 = $28,000. The difference of $1 less per share is a decrease in paid-in capital of $2,000.
7.	Items that decrease retained earnings:
	Net loss (from the income statement)
	Cash and stock dividends (All dividends are reductions in retained earnings.)
	Prior period adjustment (from an accounting error in a prior period that overstated net income)
	Accumulated prior effect of a change in accounting principle (cumulative decrease in net income)
	Sale of treasury stock at a price below cost (Retained earnings is debited, or reduced, when there is insufficient paid-in capital from treasury stock to absorb the full difference for the decrease in stockholders’ equity.)
	Increase in appropriations of retained earnings (when retained earnings available for dividends is reduced by a journal entry)

Learning Goal 30, continued

SOLUTIONS

Learning Goal 30: More Paid-in Capital and Retained Earnings Transactions

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