| Course | ACC 318 Intermediate Accounting II |
|---|---|
| Module | Module 5 |
| Paper type | undergraduate stockholders' equity transactions and statement assignment |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 318 Module 5
New Investors, a Departing Founder and Two Dividends: Recording the Owners' Year at a Composite Trampoline Park Chain
[Student Name]
Southern New Hampshire University
ACC 318: Intermediate Accounting II
Module Five Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
New Investors, a Departing Founder and Two Dividends: Recording the Owners' Year at a Composite Trampoline Park Chain
Introduction
For most of its history the trampoline park chain was owned by its two founders and a handful of employees. This year changed that. A private equity firm invested $10 million to fund new parks, one founder retired and sold part of his stake back to the company, and the board declared the first dividend in four years. Each of those events changes stockholders' equity without passing through net income, so they are recorded directly in equity accounts and summarized in a statement of stockholders' equity (Kieso et al., 2019). This assignment records each transaction and prepares the statement. The year opened with 3,000,000 shares of $1 par common stock issued, all of them outstanding.
Convertible Preferred Stock
On July 1 the private equity firm bought 400,000 shares of $10 par convertible preferred stock for $25 a share, or $10,000,000. Each preferred share pays a cumulative annual dividend of $1.50 and can be converted into two common shares at the holder's option.
Table 1. Preferred Stock Issuance, July 1
| Account | Debit | Credit |
|---|---|---|
| Cash | $10,000,000 | |
| Preferred stock, $10 par | $4,000,000 | |
| Paid-in capital in excess of par, preferred | 6,000,000 |
The par amount and the premium are kept in separate accounts so that legal capital and amounts paid above it are visible. The conversion feature does not change the entry today. It matters for diluted earnings per share, taken up in Module Eight, and if conversion happens later, the preferred accounts will be closed into common stock and paid-in capital without any gain or loss.
Treasury Stock
On April 1 the company bought 50,000 common shares from the retiring founder at $18 a share. Under the cost method, the purchase is recorded at what the company paid: a $900,000 debit to Treasury Stock and a credit to Cash. Treasury stock is not an asset. It is a reduction of equity, shown as a deduction after retained earnings, because buying back shares returns capital to an owner.
On October 1 the company reissued 20,000 of those shares to three park managers at $21. The shares cost $18 each, or $360,000, and brought in $420,000. The $60,000 difference is credited to Paid-in Capital from Treasury Stock, not to income, because a company cannot earn a profit by trading in its own shares. If a later reissuance were below cost, the shortfall would be charged first against that paid-in capital account and then against retained earnings.
Grullon and Michaely (2002) found that repurchases have grown as an alternative to dividends for returning cash to shareholders. For a private company, the motive is usually narrower: here the buyback gave a departing founder a buyer at a fair price and kept ownership within the company. Bens et al. (2003) showed that public companies also buy back shares to offset dilution from employee stock awards, which is partly what the reissuance to managers does in reverse.
Dividends
On December 15 the board declared both dividends, payable January 10. Preferred stock was outstanding for half the year, so the preferred dividend is $1.50 times 400,000 shares times one half, or $300,000. Common shares outstanding on the record date were 3,000,000 issued less 30,000 still held in treasury, or 2,970,000, and the common dividend of $0.20 a share totals $594,000. Treasury shares receive no dividend.
Table 2. Dividend Declaration, December 15
| Account | Debit | Credit |
|---|---|---|
| Retained earnings | $894,000 | |
| Dividends payable, preferred | $300,000 | |
| Dividends payable, common | 594,000 |
Because the preferred stock is cumulative, if the board had skipped the preferred dividend, $300,000 would have been in arrears and disclosed in the notes, and no common dividend could have been paid until the arrears were cleared.
Statement of Stockholders' Equity
Net income for the year was $3,762,500, as computed in Project One.
Table 3. Statement of Stockholders' Equity for the Year
| Item | Preferred stock | Common stock | Paid-in capital | Retained earnings | Treasury stock | Total |
|---|---|---|---|---|---|---|
| Beginning balance | $0 | $3,000,000 | $4,500,000 | $15,850,000 | $0 | $23,350,000 |
| Preferred issued | 4,000,000 | 6,000,000 | 10,000,000 | |||
| Treasury purchased | (900,000) | (900,000) | ||||
| Treasury reissued | 60,000 | 360,000 | 420,000 | |||
| Net income | 3,762,500 | 3,762,500 | ||||
| Dividends declared | (894,000) | (894,000) | ||||
| Ending balance | $4,000,000 | $3,000,000 | $10,560,000 | $18,718,500 | ($540,000) | $35,738,500 |
Total equity rose by $12,388,500, mostly from the preferred issuance. The ending treasury stock balance of $540,000 represents the 30,000 shares still held, at $18 each.
What the Year Means for the Owners
The preferred investment changed the company's capital structure more than any year of earnings could. Equity grew by more than half, which lightens the debt load relative to equity and supports the bank's covenants. But the common owners now share their future with a holder entitled to $600,000 a year in cumulative dividends before they receive anything, and with conversion rights that could add 800,000 common shares, more than a quarter of those outstanding. The equity statement records the money; the notes must explain those rights so that the founders and the bank understand who now has a claim on future earnings.
The preferred terms also limit what the board can do. Because the dividend is cumulative, skipping it in a bad year does not make it disappear; arrears build up and must be paid before any common dividend. The investment agreement adds protective provisions common in private equity deals, such as the investor's consent before new debt above a set amount or another share repurchase. Those provisions are not recorded in any account, but they shape future equity transactions as much as the cash did, and a full disclosure note would summarize them.
The treasury transactions carry a smaller lesson. Buying shares at $18 and reissuing some at $21 within six months looks like a gain, and a manager might be tempted to show it as one. Keeping it out of income protects the meaning of earnings: profit should come from running parks, not from trading the company's own shares with insiders.
Conclusion
The company recorded $10 million of convertible preferred stock at par plus premium, a $900,000 treasury purchase and a $420,000 reissuance at a $60,000 credit to paid-in capital, and $894,000 of dividends on outstanding shares only. Its statement of stockholders' equity ends at $35,738,500, with treasury stock shown as a deduction and every column traceable to the year's entries.
References
Bens, D. A., Nagar, V., Skinner, D. J., & Wong, M. H. F. (2003). Employee stock options, EPS dilution, and stock repurchases. Journal of Accounting and Economics, 36(1-3), 51-90. https://doi.org/10.1016/j.jacceco.2003.10.006
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
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 318 Module 5 instructions ask for
The Module Five assignment in ACC 318 usually lists a year of equity transactions and asks you to record them and present the results. Expect issuances of common or preferred stock at amounts above par, purchases and reissuances of treasury stock, cash and stock dividends, and sometimes stock splits or appropriations of retained earnings. Most versions require journal entries and a statement of stockholders' equity or the equity section of the balance sheet. State whether treasury stock is recorded under the cost method, compute dividends on cumulative preferred carefully, including any arrears, and explain why each item appears in the account it does. A closing sentence on what the year's transactions mean for the owners strengthens the paper.
How this ACC 318 Module 5 stockholders' equity assignment example is built
The sample records six events. In July the chain issues 400,000 shares of $10 par convertible preferred stock at $25 to a private equity firm, crediting preferred stock for $4,000,000 and additional paid-in capital for $6,000,000. In April it buys 50,000 common shares at $18 from a founder, debiting treasury stock for $900,000. In October it reissues 20,000 of them to managers at $21, crediting paid-in capital from treasury stock for $60,000. It declares the preferred dividend for the half year, $300,000, and a common dividend of $0.20 per share on 2,970,000 outstanding shares. A statement of stockholders' equity reconciles every column to year end.
Where the ACC 318 Module 5 rubric puts the points
The ACC 318 equity rubric typically scores the journal entries for each transaction, the treatment of treasury stock, dividend calculations, the statement of stockholders' equity or equity section, and the written explanation. The top band requires correct par and premium amounts, treasury stock recorded at cost and shown as a deduction from equity, dividends computed on shares outstanding rather than issued, and a statement whose ending balances match the balance sheet. Graders reward clear explanations of why gains on treasury reissuance go to paid-in capital rather than income. Common deductions include recording treasury stock as an asset, paying dividends on treasury shares and crediting a gain on treasury stock to income.
ACC 318 Module 5 help: the mistakes that cost points
Equity problems tend to go wrong in a few predictable places: dividends paid on shares issued instead of shares outstanding, treasury stock shown as an asset, a reissuance above cost credited to a gain account, and preferred dividends computed for a full year on stock issued midyear. Students also forget the date of record versus the date of payment. If your problem includes a stock split, a large or small stock dividend or a retirement of shares, the same accounts and logic apply, and we can work from your list. Before preparing the statement, total each equity account from your entries; the statement is simply those totals arranged by column and should need no new numbers.
Get ACC 318 Module 5 written to your instructions
Send the ACC 318 Module 5 problem and instructions. The paper will journalize each equity transaction, explain the accounts used and prepare a statement of stockholders' equity that ties to the balance sheet. Your first paper is on the house, normally within two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 318 Module 5 questions, answered
Where can I find a free ACC 318 Module 5 stockholders' equity sample?
This page includes a full ACC 318 Module 5 assignment recording preferred stock, treasury stock and dividends, with a statement of stockholders' equity.
How is treasury stock recorded under the cost method?
The purchase is debited to Treasury Stock at cost. On reissuance, the difference between the price and cost goes to paid-in capital from treasury stock, or to retained earnings if that account runs out.
Is treasury stock an asset?
No. It is a contra-equity account deducted from total stockholders' equity, because a company cannot own itself.
What does cumulative preferred stock mean?
Any preferred dividends not paid in a year accumulate as dividends in arrears and must be paid before common shareholders receive dividends.
Are dividends paid on treasury shares?
No. Dividends are paid only on shares outstanding, which excludes treasury shares.