(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par value common...

Question:

(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2010, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2010, Mask sold 500 shares of the treasury stock for $20 per share. In October 2010, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market value of the common stock was $21 per share. On December 20, 2010, Mask declared a $1 per share cash dividend, payable on January 10, 2011, to shareholders of record on December 31, 2010.

(a) How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet at December 31, 2010?

(b) How should Mask account for the stock dividend, and how would it affect the stockholders’ equity at December 31, 2010? Why?

December 31, 2010? Why?

(AICPA adapted)

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...