Question

1. In late 2018, NCS Corporation was formed. The corporate charter authorized the issuance of 40 million shares of common stock carrying a $1 par value, and 10 million shares of $50 par value, 10% cumulative, nonparticipating preferred stock. On Dec 23, 2018, 6 million shares of the common stock were issued in exchange for cash at an average price of $35 per share. Also on Dec 23, 3 million shares of preferred stock were issued at $55 per share.

During 2019, NCS Corporation participated in the following transactions:

• On January 30, NCS reacquired 500,000 shares for the treasury at a price of $34 per share.
• On May 31, 100,000 treasury shares were sold at $36 per share.
• On July 20, NCS reacquired and retired 1 million common shares at a price of $39 per share.
• On August 31, 100,000 treasury shares were sold at $36 per share.
• On November 15, the board of directors of NCS declared cash dividends of $1 million. Payment was scheduled for December 15, to common and preferred shareholders of record on November 15.
• On December 18, NCS declared a 5% stock dividend, payable on December 22, to common shareholders of record on December 20. At the date of declaration, the common stock was selling in the open market at $37 per share.
• On December 25, 200,000 treasury shares were sold at $35 per share.
• On December 30, NCS replaced its $1 par value common stock (all the authorized shares) with a new common stock having a $.50 par value. This represents a 2-for-1 stock split. That is, the shareholders received two shares of the $.50 par stock in exchange for each share of the $0.5 par stock they own. The $1 par stocks were collected and destroyed.
• Net income for 2019 was $15,000,000.

**Note: Dividends are not paid on shares held in the treasury. Dividends are paid only on the shares outstanding.

**Enter your answers in Thousands.

1. Prepare journal entries to record these transactions in 2019.
2. Determine the amount of dividends to be paid to preferred and common shareholders, and the amount of dividend in arrears for 2019.

Answer 1

		Journal Entry in the book of Joe Inc
1. Journal Entries- 2018					(In Million)
Date	Sn	Particular	Working	Dr	Cr
23-12-2018	1	Bank/Cash A/c Dr	6 Mn X $35 + 3 Mn X $55	375.00
		To Equity(Common stock) Share Capital A/c	6 Mn X $1		6.00
		To Pref. Share Capital A/c	3 Mn X $50		150.00
		To Security Premium A/c	(6 Mn X $(35-1)+ (3 Mn X $(55-50)		219.00
		( Being Issue of share recorded)
				375.00	375.00
2. Journal Entries- 2019					(In Million)
Date	Sn	Particular	Working	Dr	Cr
30-01-2019	1	Treasury Stock A/c	0.5 Mn X $34	17.00
		To Bank A/c			17.00
		(Being Common Stock repurchased)
31-05-2019	2	Bank A/c Dr	0.1 Mn X $36	3.60
		To Treasury Stock A/c	0.1 Mn X $35		3.50
		To Additional Paid -in Capital - Treasury Stock	0.1 Mn X $1		0.10
		( Being Treasury share sold recorded)
20-07-2019	3	Equity(Common stock) Share Capital A/c Dr	1 Mn X $39	39.00
		To Bank A/c			39.00
		(Being Common stock buy backed & Retired)
31-08-2019	4	Bank A/c Dr	0.1 Mn X $36	3.60
		To Treasury Stock A/c	0.1 Mn X $35		3.50
		To Additional Paid -in Capital - Treasury Stock	0.1 Mn X $1		0.10
		( Being Treasury share sold recorded)
15-11-2019	5	Profit & Loss A/c Dr		1.00
		To Dividend Payable A/c			1.00
		( Being Dividend declared recorded)
15-12-2019	6	Dividend Payable A/c		1.00
		To Bank/Cash A/c			1.00
		(Being Dividend paid)
18-12-2019	7	Profit & Loss A/c Dr	(6 Mn +0.1 Mn + 0.1 Mn)*5%-WN-1	0.31
		To Dividend Payable A/c			0.31
		( Being Dividend declared recorded)
	8	Profit & Loss A/c Dr	(150 Mn X 10%)	15.00
		To Dividend Payable A/c			15.00
		( Being Dividend to be accumulated on Pref. Share recorded)
	9	Dividend Payable A/c	(0.31 Mn + 15 Mn)	15.31
		To Bank/Cash A/c			15.31
		(Being Dividend to be paid on due date)
25-12-2019	10	Bank A/c Dr	(0.2 Mn X $35)	7.00
		To Treasury Stock A/c			7.00
		To Additional Paid -in Capital - Treasury Stock	($(35-35) X 0.2 Mn		-
		( Being Treasury share sold recorded)
30-12-2019	11	Equity(Common stock) Share Capital A/c-( @ Par $1)	(40 Mn X $1)	-
		To Equity(Common stock) Share Capital A/c(@ Par $0.5)	(40 Mn X 2) X $0.5		-
		( Being Splitting of share recorded)
				102.82	102.82
	WN-1	Common Stock
		From Issue	6.00
		Additional Capital	0.10
		Additional Capital	0.10
			6.20
		Note- Dividend is paid on Par Value