| Course | ACC 422 Intermediate Financial Accounting II (ACC/422) |
|---|---|
| Week | 5 |
| Paper type | Stockholders' equity paper |
| Length | about 1,068 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 422 Week 5
A Year of Equity Transactions at a Composite Specialty Pharmacy Chain: Issuing Shares, Buying Some Back, a Stock Dividend, Preferred Dividends in Arrears and the Statement of Stockholders' Equity
[Student Name]
University of Phoenix
ACC/422: Intermediate Financial Accounting II
Week 5 Assignment
[Instructor Name]
[Date]
The company and all figures are composites written for a model paper; accounting rules and research findings come from the sources listed.
A composite specialty pharmacy chain dispenses high-cost medications for chronic conditions through 42 locations and a mail-order center. It went public four years ago. At the start of the year, its stockholders' equity consisted of 60,000 shares of $100 par, 6% cumulative preferred stock, $6.0 million; common stock of 4 million shares at $1 par, $4.0 million; additional paid-in capital on common of $36.0 million; and retained earnings of $22.5 million, for total equity of $68.5 million. No preferred dividend was paid last year because the company conserved cash while building its mail-order center, so one year of preferred dividends, $360,000, was in arrears. Every equity entry answers one question: did this money come from owners, or was it earned by the business? This paper records the year's transactions.
Issuing Common Shares
In February, the company sold 500,000 new common shares at $24 in a secondary offering to fund two new locations, raising $12.0 million. Underwriting and legal costs of $480,000 are treated as a reduction of the proceeds, not an expense. The entry debits cash for $11,520,000, credits common stock for $500,000 at par and credits additional paid-in capital for $11,020,000.
Buying Back Shares
In May, after the company's share price fell on news of a change in a major insurer's reimbursement policy, the board authorized a repurchase. The company bought 200,000 shares at $18, a total of $3.6 million, under the cost method. Treasury stock is debited for $3,600,000 and cash credited. Treasury stock is a contra equity account; it reduces total equity and is not an asset, because a company cannot own itself. While held in treasury, those 200,000 shares carry no vote and earn no dividend.
Preferred Dividends, Including Arrears
In June, the board declared the preferred dividend for the current year and the year in arrears, $720,000 in total, payable in July. Because the preferred stock is cumulative, the arrears had to be paid before any dividend could go to common stockholders. Until declared, the arrears were not a liability, but they were disclosed in the notes. The declaration debits retained earnings and credits dividends payable for $720,000; the July payment clears the liability.
A Common Cash Dividend
In September, the board declared the company's first common cash dividend, $0.20 per share on 4.3 million outstanding shares, $860,000, with a record date in October and payment in November. Only outstanding shares receive dividends, so the 200,000 treasury shares are excluded. The declaration debits retained earnings and credits dividends payable.
A 10% Stock Dividend
In November, the board declared a 10% stock dividend, 430,000 new shares distributed to holders of the 4.3 million outstanding shares. The share price was $22. Because the dividend is small, under 20 to 25% of shares outstanding, it is recorded at market value: retained earnings is debited for $9,460,000, common stock credited for $430,000 and additional paid-in capital credited for $9,030,000. Total equity does not change. The stock dividend moves amounts from earned capital to contributed capital and gives shareholders more shares, each representing a smaller share of the company.
Had the board declared a two-for-one split instead, no entry would have been made beyond a memorandum: par value would have fallen to $0.50 and the number of shares would have doubled.
Reissuing Treasury Shares
In December, the company reissued 50,000 treasury shares at $23 to fund an employee stock purchase plan. Their cost was $18 each, $900,000, and the proceeds were $1,150,000. The $250,000 above cost goes to a separate paid-in capital account for treasury share transactions. It is not a gain; transactions with owners never create income. Had the shares been reissued below cost, the shortfall would have been charged first to paid-in capital from treasury stock and then to retained earnings.
Net Income and the Ending Equity Section
Net income for the year was $7.8 million. Retained earnings began at $22.5 million, increased by $7.8 million of net income and decreased by $720,000 of preferred dividends, $860,000 of common cash dividends and $9,460,000 for the stock dividend, ending at $19,260,000.
At year end, equity consists of preferred stock of $6,000,000, common stock of $4,930,000 for 4.93 million shares issued, additional paid-in capital on common of $56,050,000, paid-in capital from treasury stock of $250,000, retained earnings of $19,260,000 and less treasury stock of $2,700,000 for 150,000 shares. Total stockholders' equity is $83,790,000.
The Statement of Stockholders' Equity
The statement of stockholders' equity presents a column for each component and a row for each type of event: the offering, the repurchase, the dividends, the stock dividend, the reissue and net income. Its purpose is to reconcile the opening and closing balances of each component, and its totals must agree with the balance sheet. Weygandt et al. (2021) note that this statement shows readers how much of the change in equity came from transactions with owners and how much from operations.
Book Value per Share
Book value per common share shows what the equity section says each share is worth. Common equity at year end is total equity less the preferred stock's claim, $83,790,000 less $6,000,000, or $77,790,000. Divided by 4.78 million common shares outstanding, the 4.93 million issued less 150,000 in treasury, it is about $16.27. The market price of $22 to $24 is well above that figure, which is normal for a profitable company whose value lies in its pharmacy network, payer contracts and patient relationships rather than in its recorded assets.
Dividends or Repurchases
The board used both forms of payout. Grullon and Michaely (2002) found that US firms increasingly substituted repurchases for dividends, and Brav et al. (2005) reported that executives viewed dividends as hard to cut once started, while they considered repurchases more flexible. The company's board started a modest dividend it believes it can sustain and used a repurchase opportunistically when the share price fell.
Conclusion
The pharmacy chain's equity grew from $68.5 million to about $83.8 million, mainly through a share offering and net income, partly offset by dividends and a repurchase. The stock dividend changed the mix of equity but not the total, treasury stock reduced equity at cost and its reissue added to paid-in capital rather than income. Each entry answered the same question: owners' money, or money the business earned.
References
Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
Grullon, G., & Michaely, R. (2002). Dividends, share repurchases, and the substitution hypothesis. The Journal of Finance, 57(4), 1649-1684. https://doi.org/10.1111/1540-6261.00474
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 422 Week 5 instructions ask
ACC 422 Week 5 generally asks students to account for stockholders' equity transactions and explain the components of equity. Typical requirements include issuing common and preferred stock at par or no-par with a stated value, treasury stock purchases and reissuances under the cost method, cash dividends and the dates involved, stock dividends and stock splits, preferred dividend preferences such as cumulative and participating features, appropriations of retained earnings and the statement of stockholders' equity. Some prompts add book value per share or return on equity. Students usually present entries and a completed equity section or statement and explain how each transaction affects total equity, citing the textbook and research in APA style.
How this ACC 422 Week 5 example is built
A specialty pharmacy chain suits the week because a growing company raising money, buying back shares when its price dips and starting a dividend produces nearly every equity transaction in one year. The paper begins with the opening equity balances, then records each event in date order with its entry and a sentence on its effect. The preferred dividend section explains arrears and why they must be paid before common dividends. The stock dividend section explains why a small stock dividend is recorded at market value while a split is not recorded at all. The final sections present the ending equity and the statement of stockholders' equity and weigh repurchases against dividends.
ACC 422 Week 5 grading rubric: where the points go
Faculty tend to grade this week on correct entries, correct classification within equity and a statement of stockholders' equity that reconciles. Stock issues must separate par or stated value from additional paid-in capital; treasury stock under the cost method must be recorded at cost and reissuances must adjust paid-in capital rather than income. Small stock dividends should be recorded at fair value and large ones at par. Cumulative preferred dividends in arrears must be paid before any common dividend. The ending balances in the statement must agree with the balance sheet. Explanations and research on payout choices add credit, and neat presentation with APA references finishes the grade.
ACC 422 Week 5 help: mistakes to avoid
A frequent ACC 422 Week 5 mistake is recording a gain or loss on the reissue of treasury stock. Differences go to paid-in capital from treasury stock, or to retained earnings if that account is exhausted. Another is recording a stock split as a transfer from retained earnings; splits only change par value and share count. Students also forget that dividends in arrears are not a liability until declared, though they must be disclosed. For stock dividends, use market value for small dividends, generally under 20 to 25%. Build the statement of stockholders' equity with a column for each component. Finally, check that total equity changes only when assets change, not with stock dividends.
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ACC 422 Week 5 questions, answered
What does ACC/422 Week 5 usually cover?
It usually covers stockholders' equity: issuing stock, treasury stock, cash and stock dividends, stock splits, preferred stock features, retained earnings and the statement of stockholders' equity.
Where can I find a free ACC 422 Week 5 sample paper?
A specialty pharmacy chain example, with every equity transaction recorded and the statement of stockholders' equity completed, can be read in full here. We can also write your first equity paper free from the case you are given.
How is treasury stock recorded under the cost method?
Repurchased shares are debited to treasury stock at cost, a contra equity account; when reissued, any difference from cost goes to paid-in capital, not to income.
What is the difference between a stock dividend and a stock split?
A stock dividend transfers retained earnings to paid-in capital and issues new shares; a split increases the number of shares and lowers par value without any entry to retained earnings.
Are dividends in arrears a liability?
No. Unpaid cumulative preferred dividends are not a liability until declared, but they must be disclosed and paid before any common dividend.
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