Altenburg Inc. is a lighting fixture wholesaler located in Arizona. During its current fiscal year,
ended December 31, 2007, Altenburg Inc. completed the following selected transactions:Feb. 3 Purchased 2,500 shares of its own common stock at $26, recording the stock at cost.
(Prior to the purchase, there were 40,000 shares of $20 par common stock outstanding.)
May 1 Declared a semiannual dividend of $1 on the 10,000 shares of preferred stock and a 30¢
dividend on the common stock to stockholders of record on May 31, payable on June 15.
June 15 Paid the cash dividends.
Sept. 23 Sold 1,000 shares of treasury stock at $28, receiving cash.
Nov. 1 Declared semiannual dividends of $1 on the preferred stock and 30¢ on the common
stock. In addition, a 5% common stock dividend was declared on the common stock
outstanding, to be capitalized at the fair market value of the common stock, which is
estimated at $30.
Dec. 1 Paid the cash dividends and issued the certificates for the common stock dividend.Instructions
Journalize the entries to record the transactions for Altenburg Inc.Solution
514 Chapter 11 Stockholders’ Equity: Capital Stock and Dividends
Cumulative preferred stockA class of preferred stock that
has a right to receive regular dividends that have been passed
(not declared) before any common stock dividends are paid.Dividend payout ratioA ratio computed by dividing the
annual cash dividends (per share) by the annual net income
(per share); indicates dividend safety.Dividend yieldA ratio computed by dividing the annual
dividends paid per share of common stock by the market
price per share at a specific date; indicates the rate of return
to stockholders in terms of cash dividend distributions.Other comprehensive income (loss)Required disclo-
sures that change the stockholders’ equity, but are not dis-
closed as net income or retained earnings. These items include
foreign currency items, pension liability adjustments, and un-
realized gains and losses on investments.Outstanding stockThe stock in the hands of stockholders.ParThe monetary amount printed on a stock certificate.Preferred stockA class of stock with preferential rights
over common stock.PremiumThe excess of the issue price of a stock over its par
value.Stated valueA value, similar to par value, approved by the
board of directors of a corporation for no-par stock.Statement of stockholders’ equityThis statement is
often prepared in a columnar format, where each column
shows the change in each major stockholders’ equity classi-
fication.Stock dividend A distribution of shares of stock to
stockholders.Stock optionThe right to purchase common stock at a fixed
price over a limited period of time, often used to provide em-
ployee incentives to enhance stock price.Stock splitA reduction in the par or stated value of a
common stock and the issuance of a proportionate number of
additional shares.Treasury stockStock that a corporation has once issued
and then reacquires.ILLUSTRATIVE ACCOUNTING APPLICATION PROBLEM
2007
Feb. 3 Treasury Stock 65,000
Cash 65,000
May 1 Retained Earnings 21,250
Cash Dividends Payable 21,250
(10,000$1) + [(40,000 2,500)$0.30]