Chapter 10 Activity #1
Issuing Stock and Paying Cash Dividends
On January 1, 2020, Mocha Incorporated issues 100,000 shares of $1 par value common stock for $35
per share. What is the journal entry for this transaction?
The next month, on February 1, 2020, Mocha Incorporated issued 50,000 shares of $15 par value, 20%
preferred stock for $50 per share. What is the journal entry for this transaction?
The following year, on July 1, 2021, Mocha Incorporated declares a $400,000 dividend. Assume the
preferred stock is cumulative preferred stock and no dividends were declared or distributed in 2020.
Calculate the amount of the dividend that will be allocated to preferred shareholders and common
shareholders and prepare the journal entry Mocha Incorporated will record on July 1, 2021 when they
declare the dividend. Assume the shares that have been issued are the shares outstanding.
Treasury Stock
Assume the following information for Cupcakes Incorporated:
Number of common shares authorized: 1,000,000 shares
Number of common shares issued and outstanding: 450,000 shares
Common Stock: $450,000
Paid-in Capital in Excess of Par—Common: $2,250,000
On September 1, 2019, Cupcakes Incorporated purchased 10,000 shares of their common stock paying
$2 per share. Record the journal entry Cupcakes Incorporated would make on September 1, 2019 when
they purchase their common stock.
On October 1, 2019, Cupcakes Incorporated resells 1,000 shares of treasury stock they purchased on
September 1, 2019 for a selling price of $2 per share. What is the appropriate journal entry Cupcakes
Incorporated would record for this transaction?
On December 1, 2019, Cupcakes Incorporated resells 1,000 shares of treasury stock they purchased on
September 1, 2019 for a selling price of $6 per share. What is the appropriate journal entry Cupcakes
Incorporated would record for this transaction?
DuPont Analysis
1. Use the last row to fill in the formulas for each ratio in the DuPont formula.
ROA x Leverage Ratio = ROE
Profit Margin x Asset Turnover x Leverage Ratio = ROE
2. Next, discuss what you see for each company upon analysis of their DuPont formulas. What is
driving each company’s ROE? What are ways a company can improve their ROE?
ROA x Leverage Ratio = ROE
Profit Margin x Asset Turnover x Leverage Ratio = ROE
Gnome Depot 5.92% x 1.91 13.47 = 152%
Caramel Apple 21.25% x 0.74 3.56 = 56%
Mostco Wholesale 2.40% x 3.54 3.08 = 26%
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