FASB Codification Case Effect of New Year Stock Dividend on Prior Year EPS 1. Provide a brief written description of the proper treatment for the January 15, X2 stock dividend with respect to the December 31, X1 EPS disclosure. 2. Compute the EPS disclosure that will appear in the December 31, X1 annual report. 3. Identify the specific paragraph of the FASB Codification which addresses this issue and submit a printout of this paragraph with your solution. 
Ch 16 FASB Codification Case Effect of New Year Stock Dividend on Prior Year EPS Facts For the year ended December 31, X1 Target Inc. had net income of $10,000. At this date Target had 1,000 common shares issued and outstanding (par value =$1 per share). The number of common shares issued and outstanding did not change during the X1 year. Also, Target Inc. has no outstanding convertible securities. Target Inc. issued its December 31, X1 annual report to shareholders on February 1, X2. On January 15, X2 the Board of Directors declared a 10% stock dividend to be distributed on January 20, X2. At the date of declaration the market price of the common stock was $10 per share. Question Does the stock dividend declared and distributed in early X2 affect the EPS disclosure that will appear in the December 31, X1 annual report? Required 1. Provide a brief written description of the proper treatment for the January 15, X2 stock dividend with respect to the December 31, X1 EPS disclosure. 2. Compute the EPS disclosure that will appear in the December 31, X1 annual report. 3. Identify the specific paragraph of the FASB Codification which addresses this issue and submit a printout of this paragraph with your solution. Codification Case Chapter 15 Treasury Stock 1. The cost of reacquired shares is debited to a contraequity account, so Target Inc. should debit Treasury Stock account. Since market price is lower than the cost, extra $10 paid per share is credited as deficit decreases PaidIn Capital - Treasury Stock (or Retained Earnings). 2. Treasury Stock (10,000 shares * $40) $400,000 Cash (10,000 shares * $30) PaidIn Capital 300,000 100,000 3. 50530304 Transactions do arise, however, in which a reacquisition of an entity's stock may take place at prices different from routine transactions in the open market. For example, to obtain the desired number of shares in a tender offer to all or most shareholders, the offer may need to be at a price in excess of the current market price. In addition, a block of shares representing a controlling interest will generally trade at a price in excess of market, and a large block of shares may trade at a price above or below the current market price depending on whether the buyer or seller initiates the transaction. An entity's reacquisition of its shares in those circumstances is solely a treasury stock transaction properly accounted for at the purchase price of the treasury shares. Therefore, in the absence of the receipt of stated or unstated consideration in addition to the capital stock, the entire purchase price shall be accounted for as the cost of treasury shares. 50530307 The difference between the cost of the treasury shares and the stated value of a corporation's common stock repurchased and retired, or repurchased for constructive retirement, shall be reflected in capital
