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Wilma Corporation reported the following amounts in its shareholders’ equity section on the December 31, 2014...

Wilma Corporation reported the following amounts in its shareholders’ equity section on the December 31, 2014 balance sheet:

Preferred shares, $5 dividend, 10,000 shares authorized,

2,500 shares issued

$180,000

Common shares, 100,000 authorized, 25,000 issued

100,000

Contributed Surplus'

122,000

Retained Earnings

238,000

Total Shareholders’ Equity

$640000

During 2015, the following transactions impacted shareholders’ equity:

  1. Jan 15: Purchased 6000 shares of its own common shares for $26 per share and retired them                     ”           ”’          •
  1. Feb 1: Issued 1,500 preferred shares at $81 per share
  1. Nov 1: Declared a 10% stock dividend on the outstanding common shares when they were trading at $31 per share.
  1. Dec 31: Declared the annual 2015, $5 per share preferred share dividend and a $3 per share dividend on the common shares. These dividends are payabIe in 2016.

Required:

  1. Prepare journal entries for each of the transactions in 2015
  1. Assume 2015 net income was $310,000, what is the ending balance of Retained Earnings for year ended December 31, 2015?

Solutions

Expert Solution

Par value of common shares=Common shares in $/Common shares issued=100000/25000=$ 4 per share
Par value of preferred shares=Preferred shares in $/Preferred shares issued=180000/2500=$ 72 per share
Journal entries:
Date Account titles and explanation Debit Credit
Jan 15. Common shares (6000*4) 24000
Contributed surplus 122000
Retained earnings (Balancing figure) 10000
Cash (6000*26) 156000
(Own common shares retired)
Feb 1. Cash (1500*81) 121500
Preferred shares (1500*72) 108000
Contributed surplus (Balancing figure) 13500
(Preferred shares issued)
Nov 1. Stock dividend (Note:1) 58900
Common shares 7600
Contributed surplus 51300
(Stock dividend declared)
Dec 31. Cash dividend (Note:2) 82700
Dividend payable 82700
(Dividend declared)
Note:1
Stock dividend is declared on common shares outstanding:
$
Common shares issued at the beginning 25000
Less: Shares retired 6000
Common shares outstanding as on Nov 1. 19000
Common shares issued as stock dividend=19000*10%=1900 shares
To common shares=1900*4=$ 7600
To contributed surplus=1900*(31-4)=$ 51300
Note:2
Preferred dividend=(2500+1500)*5=$ 20000
Common dividend=(19000+1900)*3=$ 62700
Total dividend=20000+62700=$ 82700
Ending balance of Retained Earnings for year ended December 31, 2015:
$ $
Beginning balance 238000
Add: Net income 310000
548000
Less:
Common shares retired 10000
Stock dividend 58900
Cash dividend 82700 151600
Ending balance 396400

ekkarill92 answered 3 years ago
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