Question

(TCO D) Dack Company began its operations in 2015. Below are the stock transactions it had during the year.

1. Issued 20,000 shares of common stock at a par value of 2.00, and issued the start at $ 15.00

2. Issued preferred cumulative stock of 2,000 5% $8.00 par for $20.00

3. Issued 5,000 shares of stock to the attorney for services rendered. His legal fees were for $10,000.

4. Declared a cash dividend on all outstanding stock in the amount of 10,000, on June, 1 2015.Paid the dividend on August 2, 2015.

5. Declared a small stock dividend of 5% for all common stock outstanding.

5. Repurchased 3,000 shares of common stock (using the cost method) for 8.00 per share

6. Sold 1,500 shares of treasury stock for 9.00 per share

7. Sold 1,000 treasury shares for 4.00 per share.

Requirement:
1. Show the journal entries for all transactions

2. Show the number issued and outstanding shares at the end of the year.

Answer 1

(1).

Date	Accounts Titles & Explanation	Debit	Credit
(1).	Cash	$300000
	Common Stock		$40000
	Additional paid-in capital		$260000
	(For issue of common stock)
(2).	Cash	$40000
	Preferred Stock		$16000
	Additional paid-in capital		$24000
	(For issue of preferred cumulative stock)
(3).	Legal service	$10000
	Common Stock		$10000
	(For recording issue of shares to attorney)
(4).
June 1	Retained earnings	$10000
	Dividend payable		$10000
	(For recording declaration of dividends)
August 2	Dividend payable	$10000
	Cash		$10000
	(For recording payment of dividend)
(5).	Retained earnings	$2500
	Dividend payable		$2500
	(For recording declaration of dividends)
(5).	Treasury stock	$24000
	Cash		$24000
	(For recording repurchase of common stock)
(6).	Cash	$13500
	Treasury Stock		$12000
	Additional paid-in capital-Treasury stock		$1500
	(For recording sale of treasury stock)
(7).	Cash	$4000
	Additional paid-in capital-Treasury stock	$4000
	Treasury Stock		$8000
	(For recording sale of treasury stock)

Working Note;

(1). 5% dividend on common stock will be calculated as follow;

Total common stock (20000 + 5000) = 25000 common stock

Par value of common stock (25000 * $2) = $50000

Thus 5% dividend will be calculated a follow;

($50000 * 5 / 100) = $2500

(2).

Number of common stock shares issued (20000 + 5000) = 25000 shares

Number of preferred shares issued = 2000 shares

Number of outstanding common stock (25000 - 500) = 24500 shares

Number of outstanding preferred = 2000 shares