Question

In: Accounting

Major League Apparel has two classes of stock authorized: 6%, $10 par preferred, and $1 par value common.

 

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.)

Solutions

Expert Solution

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)


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