Question

Finic company has outstanding 50,000 shares of $50 par ordinary shares which had been issued at $60 per share. Finic then entered into the following transactions: 1 Issued 60,000 10% 5-year bonds at 102 2 Issued additional 5,000 shares at a price of $65 per share. 3 Purchased 2,500 treasury shares at a price of $57 per share. 4 The board declared cash dividends at a rate of $1.40 per share. 5 Paid dividends declared in item 4 6 Recorded accrued interest on Note Payable amounted to $15,000 7 Paid accrued interest on Note Payable recorded on step 6 8 Declared and distributed share split 2 for 1 9 The board declared a share dividends at a rate of $1.54 per share. Required: Journalize the transactions and indicate the effect of each on the financial statement categories listed in the Table below, assume the company uses cost method: I- increase,D - decrease; and NE -no effect

Answer 1

Answer:

No	Account Title	Debit	Credit
1	Cash	$      61,200
	Bonds payable		$      60,000
	Premium on bond payable		1,200
2	Cash	325,000
	Common stock (20,000 × $25)		250,000
	Paid-in capital in excess of stated value-common stock		75,000
3	Treasury stock (2,500 × $57)	142,500
	Cash		142,500
4	Retained earnings	73,500
	Dividend payable-common (52,500 * $1.40)		73,500
5	Dividend payable-Common	73,500
	Cash		73,500
6	Interest expense	15,000
	Interest payable		15,000
7	Interest payable	15,000
	Cash		15,000
8	No entry required
9	Retained earnings	147,000
	Dividend payable-common (52,500 *2* $1.40)		147,000
No	Particulars	Effect on SE
1	Issued 60,000 10% 5-year bonds at 102	No effect
2	Issued additional 5,000 shares at a price of $65 per share	Increase by $325,000
3	Purchased 2,500 treasury shares at a price of $57 per share	Decrease by $142,500
4	The board declared cash dividends at a rate of $1.40 per share	Decrease by $73,500
5	Paid dividends declared in item 4	No effect
6	Recorded accrued interest on Note Payable amounted to $15,000	No effect
7	Paid accrued interest on Note Payable recorded on step 6	No effect
8	Declared and distributed share split 2 for 1	No effect
9	The board declared a share dividends at a rate of $1.54 per share	Decrease by $147,000