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Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 20Y8, were as follows: a. Issued 15,000 shares of $20 par common stock at $30, receiving cash. b. Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash. c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. e. Paid the cash dividends declared in (d). f. Purchased 8,000 shares of treasury common stock at $33 per share. g. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. h. Paid the cash dividends to the preferred stockholders. i. Sold, at $38 per share, 2,600 shares of treasury common stock purchased in (f). j. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method. Instructions 1. Journalize the selected transactions. 2. The data that follow were taken from the records of Equinox Products Inc. Unless otherwise stated, assume a December 31 balance after adjusting entries. a. Prepare a multiple-step income statement for the year ended December 31, 20Y8. b. Prepare a statement of stockholders’ equity for the year ended December 31, 20Y8. c. Prepare a balance sheet in report form as of December 31, 20Y8.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 12, Problem 1COMP
Textbook Problem
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Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 20Y8, were as follows:

  1. a. Issued 15,000 shares of $20 par common stock at $30, receiving cash.
  2. b. Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.
  3. c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.
  4. d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding.
  5. e. Paid the cash dividends declared in (d).
  6. f. Purchased 8,000 shares of treasury common stock at $33 per share.
  7. g. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued.
  8. h. Paid the cash dividends to the preferred stockholders.
  9. i. Sold, at $38 per share, 2,600 shares of treasury common stock purchased in (f).
  10. j. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method.

Instructions

  1. 1. Journalize the selected transactions.
  2. 2. The data that follow were taken from the records of Equinox Products Inc. Unless otherwise stated, assume a December 31 balance after adjusting entries.

Chapter 12, Problem 1COMP, Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31,

  1. a. Prepare a multiple-step income statement for the year ended December 31, 20Y8.
  2. b. Prepare a statement of stockholders’ equity for the year ended December 31, 20Y8.
  3. c. Prepare a balance sheet in report form as of December 31, 20Y8.

To determine

(1)

Journalize the selected transactions of Incorporation EP.

Explanation of Solution

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.

Stated value: It refers to an amount per share, which is assigned by the board of directors to no par value stock.

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

Cash dividends: The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends.

a.

Record the issuance of common stock.

DateAccount Titles and ExplanationDebit ($)Credit ($)
Cash (15,000 shares×$30)450,000
      Common Stock (15,000 shares×$20)300,000
 

      Paid-in Capital in Excess of Par value –

      Common Stock ($450,000$300,000)

 150,000
(To record issuance of 15,000 shares in excess of par)

Table (1)

  • Cash is an asset account. The amount is increased, because cash is received upon stock issued. Therefore, debit Cash account with the amount of cash received.
  • Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Common Stock account with the value of common stock.
  • Paid-in Capital in Excess of Par Value – Common stock is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value account with the amount of cash received in excess of Common Stock value.

b.

Record the issuance of par value preferred stock.

DateAccount Titles and ExplanationDebit ($)Credit ($)
 Cash (4,000 shares×$100)400,000
      Preferred Stock (4,000 shares×$80)320,000

      Paid-in Capital in Excess of Par value –

      Preferred Stock ($400,000$320,000)

80,000
(To record issuance of 4,000 preferred shares in excess of par)

Table (2)

  • Cash is an asset account. The amount is increased, because cash is received upon stock issued. Therefore, debit Cash account with the amount of cash received.
  • Preferred Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Preferred Stock account with the value of common stock.
  • Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Stated Value account with the amount of cash received in excess of Preferred Stock value.

c.

Record the issuance of par value preferred stock.

DateAccount Titles and ExplanationDebit ($)Credit ($)
 Cash ($500,000×1.04)520,000
      Bonds payable500,000
       Premium on bonds payable ($520,000$500,000)20,000
(To record issuance of bond at premium)

Table (3)

  • Cash is a current asset, and increased. Therefore, debit cash account with $520,000.
  • Bonds payable is a long-term liability, and increased on issuance of bond. Therefore, credit bonds payable account with $500,000.
  • Premium on bonds payable is adjunct liability, and increased. Therefore, credit premium on bonds payable for $20,000.

d.

Record the declaration of cash dividend on common stock and preferred stock.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
  Cash Dividends (100,000 shares×$0.50 per share)                            50,000
            Cash Dividends Payable 50,000
(To record declaration of dividends on common stock)

Table (4)

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
  Cash Dividends (20,000 shares×$1 per share)                            20,000
            Cash Dividends Payable 20,000
(To record declaration of dividends on preferred stock)

Table (5)

Declaration date: The date on which the board of directors of a corporation announces officially to distribute the dividends to its shareholders is referred as declaration date.

  • Cash Dividends is a temporary stockholders’ equity account. The account is debited as the cash dividends are declared and eventually be transferred to Retained Earnings account. Therefore, Cash Dividends account is debited
  • Cash Dividends Payable is a liability account and the amount owed to the stockholders is increased. Therefore, Cash Dividends Payable account is credited.

e.

Record the payment of cash dividend declared in (d).

Record the journal entry for the payment of cash dividends.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
  Cash Dividends Payable  70,000
             Cash ($20,000+$50,000) 70,000
(To record payment of dividends)

Table (6)

Payment date: The date on which the company makes payments to its shareholders for the declared cash dividends is referred as payment date.

  • Dividends Payable is a liability account and the amount is decreased because the dividends owed are paid off

(2) a.

To determine

Prepare a multiple-step income statement for the year ended December 31, 20Y8.

(2) b.

To determine

Prepare a statement of stockholders’ equity for the year ended December 31, 20Y8.

(2) c.

To determine

Prepare a balance sheet report form as of December 31, 20Y8.

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Chapter 12 Solutions

Financial And Managerial Accounting
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