Question

DeZurik Corp. had the following stockholders’ equity section in its June 30, 2020, balance sheet (in thousands, except share and per share amounts):

	June 30 (in thousands)
	2020				2019
Paid-in capital:
$4.50 Preferred stock, $ ? par value, cumulative, 150,000 shares authorized, 64,000 shares issued and outstanding					$	5,760
Common stock, $5 par value, 4,000,000 shares authorized, 1,640,000 shares issued, 1,500,000 shares outstanding
Additional paid-in capital on common stock						22,960
Retained earnings
Less: Treasury common stock, at cost, ? shares
Total stockholders' equity	$	52,922			$	48,000

The transactions affecting the stockholders’ equity accounts of DeZurik Corp. for the year ended June 30, 2020, are summarized here:

160,000 shares of common stock were issued at $21.25 per share.

40,000 shares of treasury (common) stock were sold for $21 per share.

Net income for the year was $1,480 (in thousands).

The fiscal 2020 preferred dividends were paid in full. Assume that all 64,000 shares were outstanding throughout the year ended June 30, 2020.

A cash dividend of $0.30 per share was declared and paid to common stockholders. Assume that transactions 1 and 2 occurred before the dividend was declared.

The preferred stock was split 2 for 1 on June 30, 2020. (Note: This transaction had no effect on transaction 4.)

Required:

a-1. Record the effect of transactions 1–6 in journal entry format.

a-2. Calculate the dollar amounts that DeZurik Corp. would report for each stockholders’ equity caption on its June 30, 2020, balance sheet, after recording the effects of transactions 1–6. Also the treasury stock was purchased at $21.

b. Indicate how the stockholders’ equity caption details for DeZurik Corp. would change for the June 30, 2020, balance sheet, as compared to the disclosures for the 2019 balance sheet.

c. What was the average issue price of common stock shown on the June 30, 2020, balance sheet?

Answer 1

a1) Journal Entries:
Date	Acc Titles	Dr. $	Cr. $
1	Cash	3400		160000*21.25
	Common Stock		800	160000*5
	Additional Paid in Capital-CS		2600	160000*16.25
	(issue 160000 @ $21.25)
2	Cash	840		40000*21/1000
	Treasury Stock		840
	(sale of 40000 treasury stock @ $21)
3	Income Summary	1480
	Retained Earnings		1480
	(transfer of income to Ret Earnings)
4	Pref. dividend	288		64000*4.5/1000
	Cash		288
	(preferred shares paid dividend)
5	Dividend	510		(1500000+160000+40000)*0.3/1000
	Cash		510
	(Cash dividend @ 0.30 paid on o/s 1700000 shares)
6	$4.5 Preferred Stock	5760		64000*0.09
	$2.25 Preferred stock		5760
	(Pref. share split 2 for 1)

a2 & b)
Shareholders' Equity:	30-Jun	30-Jun	Changes
	2020	2019
Paid up Capital:
$2.25 Preferred Stock, $45 par value,
cumulative, 300000 shares authorised,
128000 shares issued and outstanding	5760	5760	0
Common Stock, $5 par Value, 4000000
shares authorised, 1800000 shares issued,
1700000 shares outstanding	9000	8200	800
Additional paid in capital CS	25560	22960	2600
Retained earnings	14702	14020	682
Less:T Stock	2100	2940	840
Shareholders' equity=	52922	48000	4922
c) Average issue price of CS:
(9000+25560)*1000/1800000 = $19.2 per CS