FIANACIAL ACCOUNTING
FIANACIAL ACCOUNTING
5th Edition
ISBN: 9781266704444
Author: SPICELAND
Publisher: MCG
Question
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Chapter 10, Problem 6PA

1.

To determine

Record the given transactions.

1.

Expert Solution
Check Mark

Answer to Problem 6PA

Record the given transactions:

DateAccount title and ExplanationPost Ref.

Debit

($)

Credit

($)

January 2, 2021Cash (110,000shares×$70)7,700,000
Common stock (110,00shares×$1)110,000
Additional paid-in-capital (balance)7,590,000
(To record the issue of common stock)
February 14, 2021Cash (60,000shares×$12)720,000
Preferred stock (60,000shares×$10)600,000
Additional paid in capital (balance)120,000
(To record the issue of preferred stock)
May 8, 2021Treasury stock (11,000shares×$60)660,000
Cash660,000
(To record the purchase of treasury stock)
May 31, 2021Cash (5,500shares×$65)357,500
Treasury stock (5,500shares×$60)330,000
Additional paid in capital (5,500shares×$5)27,500
(To record the sale of treasury stock above cost)
December 1, 2021Dividends [(104,500 shares×$0.25)+$36,000]62,125
Dividend payable62,125
(To record the declaration of cash dividend)
December 30, 2021Dividend payable62,125
Cash62,125
(To record the payment of cash dividend)

Table (1)

Explanation of Solution

Common stock: Common stock is the cash raised by the company by issuing common or ordinary shares to the stockholders. This is an investment for the shareholders for which they receive the dividends from the issuing company, and have voting rights.

Preferred stock: Preferred stock is the cash raised by the company by issuing preferred shares. This investment fetches a preferential right for dividend for the preferred stockholders over the common stockholders.

Paid-in capital in excess of par value: This is the total of stock capital contributed by investors in excess of par value, and so, sometimes referred to as paid-in capital in excess of par value. It includes preferred stock capital issued in excess of par value, common stock capital issued in excess of par value, and capital issued by the way of sale of treasury stock.

Treasury stock: The shares which were reacquired or bought back by the company, but not formally retired from the corporation stock, are called as treasury stock. The re-acquisition of issued shares decreases the number of outstanding shares.

Explanation for the above journal entries:

Issue of common stock:

  • Cash (asset account) is increased. Thus, it is debited.
  • Common stock (component of equity) is increased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Issue of preferred stock:

  • Cash (asset account) is increased. Thus, it is debited.
  • Preferred stock (component of equity) is increased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Purchase of treasury stock:

  • Treasury stock is a contra equity account. It is increased. Thus, it is debited.
  • Cash (asset account) is decreased. Thus, it is credited.

Sale of treasury stock above cash:

  • Cash (asset account) is increased. Thus, it is debited.
  • Treasury stock is a contra equity account. It is decreased. Thus, it is credited.
  • Additional paid-in-capital (component of equity) is increased. Thus, it is credited.

Record the declaration of cash dividend:

  • Dividend (decreases the retained earnings) is a legal obligation. It is increased. Thus, it is debited.
  • Dividend payable (liability account) is increased. Thus, it is credited.

Record the payment of cash dividend:

  • Dividend payable (liability account) is decreased. Thus, it is debited.
  • Cash (asset account) is decreased. Thus, it is credited.

2.

To determine

Prepare the stockholders’ equity section of the balance sheet as on December 31, 2021.

2.

Expert Solution
Check Mark

Explanation of Solution

Prepare the stockholders’ equity section of the balance sheet as on December 31, 2021:

Company MLA
Balance Sheet (partial)
As on December 31,2021
Liabilities and Stockholders’ equityAmount $
Stockholders’ equity:
Preferred stock, $10 par value$600,000
Common stock, $1 par value110,000
Additional paid-in capital7,737,500
Total paid-in capital8,447,500
Retained earnings (1)427,875
Treasury stock, 5,500 shares(330,000)
Total stockholders’ equity$8,545,375

Table (1)

Working note:

Compute the retained earnings:

Retained earnings = Net incomeDividends= $490,000$62,125=$427,875 (1)

Conclusion

Therefore, the total stockholder’s equity as on December 31, 2021 is $8,545,375.

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Chapter 10 Solutions

FIANACIAL ACCOUNTING

Ch. 10 - Prob. 11SSQCh. 10 - Prob. 12SSQCh. 10 - Prob. 13SSQCh. 10 - Prob. 14SSQCh. 10 - Prob. 15SSQCh. 10 - Prob. 1AECh. 10 - Prob. 2AECh. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - LO10–2 9. What is par value? How is it related to...Ch. 10 - Prob. 10RQCh. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - Prob. 18RQCh. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Determine the amount of preferred stock dividends...Ch. 10 - Prob. 8BECh. 10 - Record sale of treasury stock (LO10–4) BE10–9...Ch. 10 - Record cash dividends (LO10–5) BE10–10 Divine...Ch. 10 - Prob. 11BECh. 10 - Prob. 12BECh. 10 - Prob. 13BECh. 10 - Prob. 14BECh. 10 - Calculate the return on equity (LO10–8) BE10–15...Ch. 10 - Match terms with their definitions (LO10–1) E10–1...Ch. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Determine the amount of preferred stock dividends...Ch. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Match terms with their definitions (LO10–1) P10–1A...Ch. 10 - Prob. 2PACh. 10 - Indicate effect of stock dividends and stock...Ch. 10 - Prob. 4PACh. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 1PBCh. 10 - Prob. 2PBCh. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Prob. 5PBCh. 10 - Prob. 6PBCh. 10 - Prob. 7PBCh. 10 - Prob. 1APCh. 10 - Prob. 2APCh. 10 - Prob. 3APCh. 10 - Prob. 4APCh. 10 - Prob. 5APCh. 10 - Prob. 7APCh. 10 - Prob. 8AP
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