Concept explainers
Gray Company lists the following shareholders’ equity items on its December 31, 2018, balance sheet:
The following stock transactions occurred during 2019:
Required:
- 1. Prepare
journal entries to record the preceding transactions. - 2. Prepare the December 31, 2019, shareholders’ equity section (assume that 2019 net income was $225,000).
1.
Prepare necessary journal entry to record the given transactions.
Explanation of Solution
Stockholders’ Equity Section:
It is refers to the section of the balance sheet that shows the available balance stockholders’ equity as on reported date at the end of the financial year.
Date | Account Titles and explanation | Debit ($) | Credit ($) |
January 4, 2019 | Cash | 75,000 | |
Common stock , at $10par | 10,000 | ||
Additional paid-in capital from stock dividend | 45,000 | ||
( To record the issuance of 1000 share of common stock at $40 per share) | |||
January 30, 2019 | Dividend payable: Preferred | 9,600 | |
Dividend payable: Common (1) | 32,000 | ||
Cash | 41,600 | ||
(To record declaration of preferred and common stock) | |||
March 2, 2019 | Cash | 15,000 | |
Preferred stock, $100 par | 1,500 | ||
Additional paid-in capital on preferred stock | 5,000 | ||
( To record issuance of preferred stock) | 11,500 | ||
March 7, 2019 | Cash | 8,200 | |
Treasury stock | 6,200 | ||
Additional paid-in capital on common stock | 2,000 | ||
(To record the reissuance of treasury stock) | |||
June 15, 2019 | No entry is required | ||
June 15, 2019 | No entry is required | ||
July 2, 2019 | Retained earnings (2) | 27,440 | |
Common stock to be distributed | 9,800 | ||
Additional paid-in capital from stock dividend | 17,640 | ||
(To record declaration of stock dividend) | |||
August 3,2019 | Common stock to be distributed | 9,800 | |
Common stock, $5 par | 9,800 | ||
(To record the issuance of stock dividend) | |||
October 1,2019 | Allowance for change in value of investment | 2,000 | |
Unrealized increase in the value of available-for-sale of securities | 6,000 | ||
Gain on disposal of investment | 8,000 | ||
(To record the declaration of property dividend) | |||
Retained earnings | 32,000 | ||
Property dividend payable | 32,000 | ||
(To record the current value of the bond) | |||
November 1,2019 | Property dividend payable | 32,000 | |
Investment in Company L stock | 24,000 | ||
Allowance for change in value of investment | 8,000 | ||
(To record the issuance of property dividend) | |||
December 31, 2019 | Retained earnings | 53,960 | |
Dividends payable: Preferred (3) | 12,800 | ||
Dividends payable: Common (4) | 41,160 | ||
(To record the declaration of annual per share dividend to the preferred and common stock) |
Table (1)
Note:
Note 1: On July 15 memorandum entry is made as the common stock split two for one and the par value is reduced from $10 to $5.
Note 2: On July 15 memorandum entry is made when treasury stock participates in the stock split. The treasury stock has 2,800 shares at a $6 par value per share costing $10.50 per share.
Working notes:
(1) Calculate the amount of dividend payable to the common stock:
(2) Calculate the amount of retained earnings:
Particulars | Amount in $ |
Shares issued | 42,000 |
Less: Treasury shares (1,400 stock split for two for one) | 2,800 |
Shares outstanding | 39,200 |
Multiply: Stock dividend | 5% |
Shares in stock dividend | 1,960 |
Multiply: Current market price | $14 |
Reduction in retained earnings | 27,440 |
Table (2)
(3) Calculate the amount of dividend payable to the preferred stock:
(4) Calculate the amount of dividend payable to the preferred stock:
2.
Prepare Company G’s statement of stockholder’s equity section for 2016.
Explanation of Solution
Company G | |
Shareholder's equity | |
For the year ended December 31,2019 | |
Particulars | Amount in $ |
Contributed Capital: | |
Preferred stock (8%, $100 par, 1,600 shares issued and outstanding) | 160,000 |
Common stock ($5 par, 43,960 shares issued of which 41,160 are outstanding and 2,800 shares are being held as treasury stock) | 219,800 |
Additional paid-in capital on preferred stock | 31,600 |
Additional paid-in capital on common stock | 93,000 |
Additional paid-in capital from treasury stock | 1,800 |
Additional paid-in capital from stock dividend | 17,640 |
Total contributed capital | 523,840 |
Retained earnings (restricted in the amount of $29,400, the cost of the treasury shares) (5) | 341,600 |
Total contributed capital, retained earnings, and donated capital | 865,440 |
Less: Treasury stock (2,800 shares of common at $10.50 per share) | (29,400) |
Total Shareholders’ Equity | 836,040 |
(Table 3)
(5) Calculate the amount of retained earnings:
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Chapter 16 Solutions
Intermediate Accounting: Reporting And Analysis
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