Krull Corporation presented the following selected information. The company has a calendar year end.
Before considering the effects of dividends, if any, Krull's net income for 20X7 was $2,500,000.
Before considering the effects of dividends, if any, Krull's net income for 20X8 was $3,000,000.
Krull declared $750,000 of dividends on November 15, 20X7. The date of record was January 15, 20X8. The dividends were paid on February 1, 20X8.
Stockholders' equity, at January 1, 20X7, was $5,000,000. No transactions impacted stockholders' equity throughout 20X7 and 20X8, other than the impact of earnings and dividends on retained earnings.
Prepare journal entries, if needed, to reflect the dividend declaration, the date of record, and the date of payment.
How much was net income for 20X7 and 20X8?
How much was total equity at the end of 20X7 and 20X8?
Is total "working capital" reduced on the date of declaration, date of record, and/or date of payment?
Kenya Corporation had an equity structure that consisted of $1 par value common stock, $3,500,000; paid-in capital in excess of par, $17,500,000; and retained earnings, $22,700,000.
Transaction ABelieving that its share price was depressed due to general market conditions, Kenya's board of directors authorized the reacquisition of 250,000 shares of common stock. These treasury shares were purchased at $10 per share.
Transaction BSubsequent to Transaction A, the stock price increased to $17 per share, and half of the treasury shares were sold in the open market.
Transaction CSubsequent to Transaction B, Kenya experienced business difficulties that necessitated it selling the remaining treasury shares to raise additional cash. The shares were sold for $6 per share.
Assuming that all 3,500,000 shares of Kenya were issued at the same time and at the same price per share, what was the original issue price? How does this compare to the price paid in Transaction A, and is it rational for a company to pay more to buy back shares than it originally received upon the initial issuance?
Prepare an appropriate journal entry to record Transaction A. Kenya records treasury shares at cost.
Prepare an appropriate journal entry for Transaction B.
Prepare an appropriate journal entry for Transaction C.
Is there any income statement impact from these transactions? What is the impact on total stockholders' equity from each of the three transactions?