Question

 

Major League Apparel has two classes of stock authorized: 6%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2018, its first year of operations:

January 2 Issue 110,000 shares of common stock for $67 per share.

February 14 Issue 57,000 shares of preferred stock for $12 per share.

May 8 Repurchase 11,000 shares of its own common stock for $57 per share.

May 31 Reissue 5,500 shares of treasury stock for $62 per share.

December 1 Declare a cash dividend on its common stock of $0.40 per share and a $34,200 (6% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.)

December 30 Pay the cash dividends declared on December 1.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. Net income for the year was $487,000. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Jan-02	Cash (110,000 x $67)	$ 7,370,000
	Common Stock (110,000 x $1)		$     110,000
	Additional Paid-in Capital - Common Stock ($7,370,000-$110,000)		$ 7,260,000
	(To record the issue of common stock)
Feb-14	Cash (57,000*$12)	$     684,000
	Preferred Stock (57,000*$10)		$     570,000
	Additional Paid-in Capital - Preferred Stock ($684,000-$570,000)		$     114,000
	(To record the issue of preferred stock)
May-08	Treasury Stock (11,000*$57)	$     627,000
	Cash		$     627,000
	(To record the purchase of treasury stock)
May-31	Cash (5,500*$62)	$     341,000
	Treasury Stock ( 5,500*$57)		$     313,500
	Paid-in Capital - Treasury Stock ($34,100-$31,350)		$       27,500
	(To record the sale of treasury stock)
Dec-01	Retained Earnings ($34,200 + $41,800)	$       76,000
	Dividends Payable - Preferred Stock		$       34,200
	Dividends Payable - Common Stock [(110,000-11,000+5,500)*$0.40]		$       41,800
	(To record the dividends declared)
Dec-15	No Entry Required
Dec-30	Dividends Payable - Preferred Stock	$       34,200
	Dividends Payable - Common Stock	$       41,800
	Cash		$       76,000
	(To record the dividends paid)