Week 14 — Paid In, Handed Back, Bought Back: The Shop's Year 2 Equity

Assignment 13 of the term — record the bicycle shop's Year 2 stock issue, dividend, and buyback, build its equity total and earnings per share, and set a founder straight about what owners' money is and is not.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, evidence-based report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles; this assignment is where you put them together. It builds on Week 5, where you prepared the statement of retained earnings and closed Dividends to Retained Earnings.

The task

This week's material is pinned. When common stock is issued above par, Common Stock is credited for par and Additional Paid-in Capital for the rest; par value is a legal amount per share, not market value. A cash dividend is recorded as a liability, Dividends Payable, on the declaration date, gets no entry on the record date, and is paid on the payment date; a dividend is a distribution to owners, never an expense. Treasury stock is a corporation's own shares that it has reacquired and not retired, recorded at cost and reported as a deduction from stockholders' equity; it reduces shares outstanding but not shares issued. Basic earnings per share is net income minus preferred dividends, divided by the weighted-average common shares outstanding.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. Its charter authorizes 100,000 shares of $1-par common stock, and the founders already hold 30,000 shares. In Year 2 the shop sells new shares, declares and pays a cash dividend, and buys back some of its own shares.

One of the founders (an illustrative person) sends you this message: "Let's put the $7,000 dividend with our expenses, since it's money going out. The $10,000 of shares we bought back should go with our assets, because we paid cash for them. And since our par value is $1, our shares are only worth $1 each." Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

1. On the first day of Year 2, the bicycle shop issues 5,000 shares of its $1-par common stock for $9 a share. How many dollars does the entry credit to Additional Paid-in Capital?
2. The bicycle shop's board declares a cash dividend of $0.20 a share on its 35,000 outstanding shares. How many dollars is the dividend?
3. At the end of Year 2, the bicycle shop has Common Stock of $35,000, Additional Paid-in Capital of $40,000, Retained Earnings of $75,000, and Treasury Stock of $10,000 at cost. How many dollars is total stockholders' equity?
4. The bicycle shop has no preferred stock and earns net income of $69,000 in Year 2. It had 35,000 common shares outstanding for the first half of the year and 34,000 for the second half. How many dollars is its basic earnings per share?

Beside each answer, add one brief interpretation:

• Problem 1: write the issue entry as a journal entry, debit first and credits second; explain why Common Stock takes only part of the cash; and give the shares issued after the issue.
• Problem 2: write the entries for the declaration date and the payment date; say why the record date gets no entry; and say whether the dividend is an expense.
• Problem 3: write the entry for the shop's buyback of 1,000 shares at $10; explain why treasury stock is subtracted rather than listed as an asset; and give the shares issued and outstanding after the buyback.
• Problem 4: give the weighted-average common shares outstanding; and explain why the year-end share count is not the divisor.

Explain it to a non-expert

The founder means well and has three things wrong. Write a 3–5 sentence message that explains why the dividend is not an expense, why the bought-back shares are not an asset, and why par value is not what a share is worth. Name one limit, such as that these figures are illustrative or that this course gives no investment advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a friend who belongs to a neighborhood tool library and says, "The fees members paid to join are the library's income, right?" Model answer: "Not quite. When members pay to join, they are buying a share of the library, so that money is part of what the members own, not money the library earned by lending tools. Income comes from the library's own work, such as late fees or rental charges. A fair caveat: groups organize themselves in different ways, so check how this one records its joining fees."

Use that pattern for the founder, with your own wording and evidence.

Part 1 — Student instructions

1. Draft all four answers, the four brief interpretations, and your message to the founder before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Reply in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was correct.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the work for you. Add up the debits and credits of every entry it mentions yourself, and check every claim it makes about a rule against Chapter 14 before you use it.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach for an introductory financial accounting course. Draw out and challenge MY thinking about stockholders' equity: stock issued above par, cash dividends, treasury stock, the equity section, and basic earnings per share. Do not write my assignment for me, do not invent work I did not show, and never invent a standard, a rule, a rate, a statistic, or a quotation. Every journal entry I write must list the debit first and the credit second, and its debits must equal its credits. Give no tax, legal, or investment advice, and never use a real company's figures.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. The pinned facts: when common stock is issued above par, Common Stock is credited for par and Additional Paid-in Capital for the rest; par value is a legal amount per share, not market value. A cash dividend is recorded as a liability, Dividends Payable, on the declaration date, gets no entry on the record date, and is paid on the payment date; a dividend is a distribution to owners, never an expense. Treasury stock is a corporation's own shares that it has reacquired and not retired, recorded at cost and reported as a deduction from stockholders' equity; it reduces shares outstanding but not shares issued. Basic earnings per share is net income minus preferred dividends, divided by the weighted-average common shares outstanding. The bicycle shop is illustrative; its charter authorizes 100,000 shares and the founders already hold 30,000.
PROBLEM P1: On the first day of Year 2, the bicycle shop issues 5,000 shares of its $1-par common stock for $9 a share. How many dollars does the entry credit to Additional Paid-in Capital?
PROBLEM P2: The bicycle shop's board declares a cash dividend of $0.20 a share on its 35,000 outstanding shares. How many dollars is the dividend?
PROBLEM P3: At the end of Year 2, the bicycle shop has Common Stock of $35,000, Additional Paid-in Capital of $40,000, Retained Earnings of $75,000, and Treasury Stock of $10,000 at cost. How many dollars is total stockholders' equity?
PROBLEM P4: The bicycle shop has no preferred stock and earns net income of $69,000 in Year 2. It had 35,000 common shares outstanding for the first half of the year and 34,000 for the second half. How many dollars is its basic earnings per share?
After the four results, I must briefly interpret each one: for P1, the issue entry as a journal entry, why Common Stock takes only part of the cash, and the shares issued after the issue; for P2, the declaration-date and payment-date entries, why the record date gets no entry, and whether the dividend is an expense; for P3, the entry for the buyback of 1,000 shares at $10, why treasury stock is subtracted rather than listed as an asset, and the shares issued and outstanding after it; for P4, the weighted-average common shares outstanding and why the year-end share count is not the divisor. I must then write a 3-5 sentence message to a founder who wants to put the dividend with the expenses, list the bought-back shares as an asset, and thinks the $1 par value is what a share is worth, with one limit. I must explain technical terms in everyday words.

SCORING CRITERIA: Score only evidence I supply: computing the equity figures (40 points), recording and classifying the entries (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computing points, 4 recording points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message to the founder only with P4, not again with P1-P3.
COMPUTING UNITS: A correct dollar amount = 2; the right figures and operation with only an arithmetic slip = 1; a missing value or the wrong figures or operation = 0. Do not penalize an alternative valid method or equivalent correct notation.
RECORDING UNITS: For P1-P3 separately, an interpretation that meets every part named for that problem = 2; some but not all parts = 1; none = 0. For P4, BOTH the weighted-average shares with the reason the year-end count is not the divisor, AND a message to the founder that covers the dividend as a distribution, treasury stock as a deduction from equity, and par value as not market value, with a named limit = 2. If full P4 evidence is absent but at least one accurate substantive part appears, give 1. No accurate reading = 0; naming a term alone does not earn a unit, and a dividend recorded as an expense, an entry on the record date, treasury stock listed as an asset, the whole issue price credited to Common Stock, an entry that does not balance, or earnings per share figured on the year-end shares is not accurate. An arithmetic slip alone is not a recording error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to accounting, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message to the founder with P4 if submitted. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable figures and steps = 2; a relevant but incomplete figure or step = 1; a result alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word reply is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four results and their brief interpretations AND written my message to the founder AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised work, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised work with all four results, their brief interpretations, the journal entries, and your message to the founder — written, or recorded as audio or video with a transcript, or as a labelled spreadsheet of the equity section and the entries with a short explanation; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 14 skills — recording a stock issue above par with Common Stock and Additional Paid-in Capital, recording a cash dividend on its declaration and payment dates and treating it as a distribution, recording treasury stock at cost as a deduction from equity, totaling the stockholders' equity section, and computing basic earnings per share on the weighted-average shares — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, the journal entries, and the message to the founder. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have about this week's material. Submit the revised work, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, entries, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it record the $7,000 dividend as an expense, list treasury stock as an asset, credit the whole $45,000 to Common Stock, or divide by the year-end 34,000 shares. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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