1. How should a stock dividend that has been declared, but not yet issued be classified in a statement of financial position? Why?
2. Derivative accounting: What are the disclosure requirements for traditional and derivative financial instruments? Should companies disclose if such instruments are used for hedging or speculation? Why?© BrainMass Inc. brainmass.com October 17, 2018, 11:40 am ad1c9bdddf
#1 How should a stock dividend that has been declared but not yet issued be classified in a statement of financial position? Why?
A stock dividend that has been declared, but not yet paid is classified in the stockholders' equity section of the statement of financial position (balance sheet). Because dividend payments do not reduce assets, they are not considered liabilities. In order to become a liability, the event or transaction must be considered a reduction to assets. Even though the payments are made in cash (usually), the cash dividend payments are declared and paid after the company has declared its net income for the period. Dividends are not ...
This solution explains how a stock dividend is declared that has not yet been issued, and also explains the proper way to classify the declared dividend in the statement of financial position (income statement). This solution also explains the disclosure requirements for traditional and derivative financial instruments. The proper disclosure for financial assets is also discussed, with a primary focus on hedging and speculation elements.
Derivative Financial Instrument, Trading Securities Entries, Journal Entries for Fair Value and Equity Methods
13. Derivative Financial Instrument - The treasurer of Miller Co. has read on the Internet that the stock price of Ewing Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Ewing common shares on July 7, 2002, for $240. The call option is for 200 shares (notional value), and the stike price is $70. The option expires on January 31, 2003. The following data are available with respect to the call option.
Prepare the journal entries for Miller Co. for the following dates (see attachment)
7. Trading Securities Entries - On December 21, 2003, Tiger Company provided you with the following information regarding its trading securities (see attached)
During 2004, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2004, was: Clemson Corp. stock - $19,100; Buffaloes Co. stock - $20,500.
a. Prepare the adjusting journal entry needed on December 31, 2003.
b. Prepare the journal entry to record the sale of the Colorado Company stock during 2004.
c. Prepare the adjusting journal entry needed on December 31, 2004
12. Journal Entries for Fair Value and Equity Methods - Presented below are two independent situations. Prepare all necessary journal entries in 2003 for both situations.
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