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, 2014, 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, 2014, Mask sold 500 shares of the treasury stock for $20 per share.
In October 2014, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was $21 per share.
On December 20, 2014, Mask declared a $1 per share cash dividend, payable on January 10, 2015, to shareholders of record on December 31, 2014.
Instructions
(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, 2014?
(b) How should Mask account for the stock dividend, and how would it affect the stockholders' equity at December 31, 2014? Why?
(c) How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2014? Why?