Question

Stockholders’ Equity: Transactions and Balance Sheet Presentation The stockholders’ equity of Summit Corporation at January 1 follows: 7 Percent preferred stock, $100 par value, 20,000 shares authorized; 5,000 shares issued and outstanding $500,000 Common stock, $15 par value, 100,000 shares authorized; 40,000 shares issued and outstanding 600,000 Paid-in capital in excess of par value-Preferred stock 24,000 Paid-in capital in excess of par value-Common stock 360,000 Retained earnings 325,000 Total Stockholders' Equity $1,809,000 The following transactions, among others, occurred during the year: Jan. 12 Announced a 3-for-1 common stock split, reducing the par value of the common stock to $5 per share. The authorization was increased to 300,000 shares. Mar. 31 Converted $42,000 face value of convertible bonds payable (the book value of the bonds was $46,000) to common stock. Each $1,000 bond converted to 125 shares of common stock. June 1 Acquired equipment with a fair market value of $60,000 in exchange for 600 shares of preferred stock. Sept. 1 Acquired 10,000 shares of common stock for cash at $16 per share. Oct. 12 Sold 1,500 treasury shares at $18 per share. Nov. 21 Issued 5,000 shares of common stock at $13 per share. Dec. 28 Sold 1,200 treasury shares at $14 per share. 31 Closed net income of $85,000 to the Retained Earnings account

Required

• Prepare journal entries for the given transactions and post them to the T-accounts. Do not prepare the journal entry for the Dec. 31 transaction, but post the appropriate amount to the Retained Earnings T-account. Determine the ending balances for the stockholders’ equity accounts.
• Prepare the stockholders’ equity section of the balance sheet at December 31.

• Journal entries
• T-Accounts
• Stockholder's equity section

General Journal
Date	Description	Debit	Credit
Jan.12	(Memorandum) Common Stock split 3 for 1.
Mar.31	Answer

Answer	Answer
	Premium on Bonds Payable	Answer	Answer
	Common Stock	Answer	Answer
	Answer

Answer	Answer
	To record conversions of bonds.
Jun.01	Answer

Answer	Answer
	Answer

Answer	Answer
	Issued preferred stock in exchange for equipment.
Sept.01	Answer

Answer	Answer
	Answer

Answer	Answer
	Purchased treasury stock.
Oct.12	Answer

Answer	Answer
	Treasury Stock - Common	Answer	Answer
	Answer

Answer	Answer
	Sold treasury stock.
Nov.21	Answer

Answer	Answer
	Common Stock	Answer	Answer
	Answer

Answer	Answer
	Issued common stock.
Dec.28	Answer

Answer	Answer
	Paid-in-Capital from Treasury Stock	Answer	Answer
	Answer

Answer	Answer
	To record sale of treasury stock.

Cash
Sept.01	Answer	Answer
Oct.12	Answer	Answer
Nov.21	Answer	Answer
Dec.28	Answer	Answer

Bonds Payable
Mar.31	Answer	Answer

Premium on Bonds Payable
Mar.31	Answer	Answer

Equipment
Jun.01	Answer	Answer

Preferred Stock
Beg. bal		500,000
Jun.01	Answer	Answer
Bal	Answer	Answer

Common Stock
Beg. bal		600,000
Jan.12		(3 for 1 split)
Mar.31	Answer	Answer
Nov.21	Answer	Answer
Bal.	Answer	Answer

Paid-in-Capital in Excess of Par Value - Preferred Stock
Beg. bal		24,000
Jun.01	Answer	Answer
Bal.	Answer	Answer

Paid-in-Capital in Excess of Par Value - Common Stock
Beg. bal		360,000
Mar.31	Answer	Answer
Nov.21	Answer	Answer
Bal.	Answer	Answer

Paid-in-Capital from Treasury Stock
Oct.12	Answer	Answer
Dec.28	Answer	Answer
Bal.	Answer	Answer

Treasury Stock - Common
Sept.01	Answer	Answer
Oct.12	Answer	Answer
Dec.28	Answer	Answer
Bal.	Answer	Answer

Retained Earnings
Beg. bal		325,000
Dec.31	Answer	Answer
Bal.	Answer	Answer

Stockholders' Equity
	Paid in Capital
	Answer

Answer
	Answer

Answer	Answer
	Additional Paid-in-Capital
	Paid-in-Capital in Excess of Par value -Preferred Stock	Answer
	Paid-in-Capital in Excess of Par value - Common Stock	Answer
	Answer

Answer	Answer
	Total Paid-in-Capital		Answer
	Answer

	Answer
			Answer
	Answer

	Answer
	Answer

Answer

Answer 1

		General Journal
Date	Description					Debit	Credit
Jan 12.	(Memorandum) Common stock split 3 for 1
Mar 31.	Bonds payable					42000
	Premium on bonds payable				(Note:1)	4000
	Common stock				(Note:2)		26250
	Paid-in-capital in excess of par value-common stock				(Plug)		19750
	(To record conversion of bonds)
June 01.	Equipment					60000
	Preferred stock			(600*100)			60000
	(issued preferred stock in exchange for equipment)
Sep 01.	Treasury stock-common			(10000*16)		160000
	Cash						160000
	(Purchased treasury stock)
Oct 12.	Cash			(1500*18)		27000
	Treasury stock-common			(1500*16)			24000
	Paid-in-capital from treasury stock				(Plug)		3000
	(Sold treasury stock)
Nov 21.	Cash			(5000*13)		65000
	Common stock			(5000*5)			25000
	Paid-in-capital in excess of par value-common stock				(Plug)		40000
	(Issued common stock)
Dec 28.	Cash			(1200*14)		16800
	Paid-in-capital from treasury stock				(Plug)	2400
	Treasury stock-common			(1200*16)			19200
	(To record sale of treasury stock)
Note:1	Premium on bonds payable=Book value-face value=46000-42000=$ 4000
Note:2	Number of shares to be issued=Number of bonds*125
	Number of bonds=Face value/Par value=42000/1000=42
	Number of shares to be issued=42*125=5250
	Common stock in $=5250*5=$ 26250
	Cash					Bonds payable
Oct 12.	65000	160000	Sep 01.		Mar 31.	42000	42000	Beg.
Nov 21.	65000					42000	42000
Dec 28.	16800
	146800	160000
		13200	End.
	Equipment				Premium on bonds payable
June 01.	60000				Mar 31.	4000	4000	Beg.
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