Question

Monsoon Company carried out the following transactions related to its common and preferred shares.

Year 1

January 1: Issued 8,000 common shares for $20 each.

January 1: Issued 2,000 cumulative preferred shares for $30 each. The preferred shares pay a yearly dividend of $1.00 per share.

February 7: Issued 2,000 common shares for a small parcel of land. The land has an appraised value of $42,000.

November 30: Declared a dividend of $4,000 to be paid

December 31. December 31: Paid the dividend declared on November 30.

Year 2:

January 1: Issued 3,000 cumulative preferred shares for $80 each. They pay a yearly dividend of $1.50 per year.

March 30: Issued 20,000 common shares for $22 each No dividends were declared during Year 2.

Year 3

November 30: Declared a dividend of $15,000 to be paid December 31.

December 31: Paid the dividend declared on November 30.

Year 4

September 30: Declared a 10% common stock dividend to be distributed on October 31. On that date, the common shares were trading for $20.

October 31: Distributed the common stock dividend.

November 10: Reacquired 1,000 common shares for $19 each. Instructions: Prepare all the required journal entries for the above transactions.

Answer 1

Answer:

Year 1
Date	Journal Entries	Debit	Credit
1-Jan	Bank A/c Dr	$            160,000
	To Share Capital		$            160,000
	(Being 8000 common shares issued for $ 20 each)
1-Jan	Bank A/c Dr	$              60,000
	To Cumulative Preference Share Capital		$              60,000
	(Being 2000 cumulative preference shares issued for $ 30 each)
7-Feb	Land A/c Dr	$              42,000
	To Share Capital		$              40,000
	To Securities Premium		$                 2,000
	(Being 2000 common shares issued for $ 42000 amount of land)
30-Nov	Retained Earnings A/c Dr	$                4,000
	To Dividend Payable		$                 4,000
	(Being $ 4000 dividend declared)
31-Dec	Dividend Payable A/c Dr	$                4,000
	To Bank		$                 4,000
	(Being $ 4000 dividend paid)
31-Dec	Retained Earnings A/c Dr	$                2,000
	To Preference Dividend Payable		$                 2,000
	(Being $ 2000 dividend accumulated for preference shares)
31-Dec	Preference Dividend Payable A/c Dr	$                2,000
	To Preference share holders		$                 2,000
	(Being $ 2000 dividend accumulated for preference shares)
Year 2
Date	Journal Entries	Debit	Credit
1-Jan	Bank A/c Dr	$            240,000
	To Cumulative Preference Share Capital		$            240,000
	(Being 3000 cumulative preference shares issued for $ 80 each)
30-Mar	Bank A/c Dr	$            440,000
	To Share Capital		$            400,000
	To Securities Premium		$              40,000
	(Being 20000 common shares issued for $ 22 each)
31-Dec	Retained Earnings A/c Dr	$                6,500
	To Preference Dividend Payable		$                 6,500
	(Being dividend accumulated for preference shares)
31-Dec	Preference Dividend Payable A/c Dr	$                6,500
	To Preference share holders		$                 6,500
	(Being dividend accumulated for preference shares)
Year 3
Date	Journal Entries	Debit	Credit
30-Nov	Retained Earnings A/c Dr	$              15,000
	To Dividend Payable		$              15,000
	(Being $ 15000 dividend declared)
31-Dec	Dividend Payable A/c Dr	$              15,000
	To Bank		$              15,000
	(Being $ 15000 dividend paid)
31-Dec	Retained Earnings A/c Dr	$                6,500
	To Preference Dividend Payable		$                 6,500
	(Being dividend accumulated for preference shares)
31-Dec	Preference Dividend Payable A/c Dr	$                6,500
	To Preference share holders		$                 6,500
	(Being dividend accumulated for preference shares)
Year 4
Date	Journal Entries	Debit	Credit
30-Sep	Retained Earnings A/c Dr	$              60,000
	To Dividend Payable		$              60,000
	(Being 10 % dividend declared on Common Stock)
31-Oct	Dividend Payable A/c Dr	$              60,000
	To Bank		$              60,000
	(Being dividend paid)
10-Nov	Share Capital A/C Dr	$              20,000
	To Bank		$              19,000
	To P&L A/C		$                 1,000
	(Being re-acquired 1000 shares at $ 19 each)
31-Dec	Retained Earnings A/c Dr	$                6,500
	To Preference Dividend Payable		$                 6,500
	(Being dividend accumulated for preference shares)
31-Dec	Preference Dividend Payable A/c Dr	$                6,500
	To Preference share holders		$                 6,500
	(Being dividend accumulated for preference shares)