Question

Prepare the journal entry to record the following equity transactions. Assume the transactions are independent from each other.

(a) The shareholders' equity of Tru Corporation includes $600,000 of $1 par common stock and $1,200,000 par of 6% cumulative preferred stock. The board of directors of Tru declared cash dividends of $150,000 in 2021 after paying $60,000 cash dividends in each of 2020 and 2019. Required: Journal Entry

(b) In 2021, Poe's Products completed the treasury stock transactions described below.

January 2: Issued 300,000 of its common shares for $8 per share and 3,000 preferred shares at $110.

February 15: Issued 50,000 shares of common stock in exchange for equipment with a known cash price of $310,000.

September 20: Sold 3 million treasury shares at $15 per share. Poe had issued 50 million shares of its $1 par common stock for $18 several years ago. Jan 2 Feb 15th Sep 20th

Required: Journal Entry

Answer 1

a)In case of cumulative preference shares ,Any dividend not paid in any year is carried forward to future year and paid in prference to that year current preferred and common stock dividend.

Preferred dividend = 1200000*6%= 72000

	Preferred	common
Dividend in arrear
2019	12000 [72000-60000]
2020	12000
2021	72000
common stock dividend		150000-96000=54000
Total	96000	54000

Date	Account title	Debit	credit
2021	Cash dvidend	150000
	Dividend payable -preferred stock		96000
	Dividend payable -common stock		54000

b)

Date	Account title	Debit	credit
Jan 2	cash	2730000
	preferred stock (3000*110)		330000
	common stock (300000*8)		2400000
Feb 15	Equipment	310000
	common stock		310000
Sep 20	cash(3000000*15)	45000000
	Treasury stock		45000000

#In situation 2 ,par value of preferred stock and common stock is not given thus whole amount is credited to their respective account and not to additional paid in capital