Question

1. Dog Food Supply, Inc. reported the following on it December 31, 2019 balance sheet: “4,000,000 shares authorized, 500,000 shares issued and outstanding of $10 par value common stock”. The company issued (for cash) 40,000 shares of common stock on June 30, 2020 when the stock was selling at $45 a share. Then on September 15th, 2020, the company declared a cash dividend of $0.85 per share. On October 15th , of the same year, the company paid the dividends declared in September. On December 1, 2020, the company’s stock price rose to $95 and the company declared a two-for-one stock split.

Required: a. Present the journal entry to record the issuance of the stock on June 30, 2020. Show all supporting calculations.

b. What is the total number of shares outstanding on July 1, 2020?

c. Present the entry to record the declaration and the entry to record the payment of the cash dividends (Sept 15 and Oct 15th). Show all supporting calculations.

d. What is the total number of shares outstanding on December 31, 2020? Show your work.

e. What it the balance in Common Stock account (in dollars) on December 31, 2020? Show your work or calculations. f

. If retained earnings had a balance of $1,200,000 on December 31, 2019 and income summary account had a credit ending balance $800,000 (before closing entries), what is the retained earning balance on December 31, 2020, after all closing entries are posted? Show your work and explain your answer.

Answer 1

a.

Date	General Journal	Debit	Credit
June 30, 2020	Cash (40000 x $45)	1800000
	Common stock (40000 x $10)		400000
	Paid-in capital in excess of par-common		1400000
	(To record the issuance of the stock)

b. Total number of shares outstanding on July 1, 2020 = 500000 + 40000 = 540000

c.

Date	General Journal	Debit	Credit
Sept. 15, 2020	Dividends (540000 x $0.85)	459000
	Dividends payable		459000
	(To record the declaration of the cash dividend)
Oct. 15, 2020	Dividends payable	459000
	Cash		459000
	(To record the payment of the cash dividend)

d. Total number of shares outstanding on December 31, 2020 = (500000 + 40000) x 2 = 1080000

e. Balance in Common Stock account on December 31, 2020 = 1080000 shares x $10/2 = 1080000 x $5 = $5400000

f. Retained earnings balance on December 31, 2020: $1541000

Retained earnings, December 31, 2019	1200000
Add: Net income	800000
	2000000
Less: Cash dividends	459000
Retained earnings, December 31, 2020	1541000