Question

Entries for Selected Corporate Transactions

Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Nav-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows:

Common Stock, $10 stated value (600,000 shares authorized, 400,000 shares issued)$4,000,000

Paid-In Capital in Excess of Stated Value-Common Stock750,000

Retained Earnings9,080,000

Treasury Stock (40,000 shares, at cost)600,000

The following selected transactions occurred during the year:

Jan. 15.Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $50,400.

Mar. 15.Sold all of the treasury stock for $18 per share.

Apr. 13.Issued 75,000 shares of common stock for $1,350,000.

June 14.Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $20 per share.

July 16.Issued shares of stock for the stock dividend declared on June 14.

Oct. 30.Purchased 25,000 shares of treasury stock for $20 per share.

Dec. 30.Declared a $0.17-per-share dividend on common stock.

31.Closed the two dividends accounts to Retained Earnings.

Required:

1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate. If required, round to one decimal place.

Common Stock

  Jan. 1 Bal.4,000,000

  Apr. 13

  July 16

  Dec. 31 Bal.

Paid-In Capital in Excess of Stated Value-Common Stock

  Jan. 1 Bal.750,000

  Apr. 13

  June 14

  Dec. 31 Bal.

Retained Earnings

Dec. 31 Jan. 1 Bal.9,080,000

   

  Dec. 31 Bal.

Treasury Stock

Jan. 1 Bal.600,000Mar. 15

Oct. 30   

Dec. 31 Bal.  

Paid-In Capital from Sale of Treasury Stock

  Mar. 15

Stock Dividends Distributable

July 16 June 14

Stock Dividends

June 14 Dec. 31

Cash Dividends

Dec. 30 Dec. 31

2. Journalize the entries to record the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

Jan. 15. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $50,400.

DateAccountDebitCredit

Jan. 15Cash Dividends Payable

Cash

Mar. 15. Sold all of the treasury stock for $18 per share.

DateAccountDebitCredit

Mar. 15Cash

Treasury Stock

Paid-In Capital from Sale of Treasury Stock

Apr. 13. Issued 75,000 shares of common stock for $1,350,000

DateAccountDebitCredit

Apr. 13Cash

Common Stock

Paid-In Capital in Excess of Stated Value-Common Stock

June 14. Declared a 4% on common stock, to be capitalized at the market price of the stock, which is $20 per share.

DateAccountDebitCredit

June 14Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Stated Value-Common Stock

July 16. Issued stock for stock dividend declared on June 14.

DateAccountDebitCredit

July 16Stock Dividends Distributable

Common Stock

Oct. 30. Purchased 25,000 shares of treasury stock for $20 per share.

DateAccountDebitCredit

Oct. 30Treasury Stock

Cash

Dec. 30. Declared a $0.17-per-share dividend on common stock.

DateAccountDebitCredit

Dec. 30Cash Dividends

Cash Dividends Payable

Dec. 31. Closed the two dividends accounts to Retained Earnings.

DateAccountDebitCredit

Dec. 31Retained Earnings

Stock Dividends

Cash Dividends

3. Prepare a statement of stockholders’ equity for the year ended December 31, 20Y1. Assume that net income was $9,443,000 for the year ended December 31, 20Y1. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If an amount box does not require an entry, leave it blank or enter “0”.

Nav-Go Enterprises Inc.
Statement of Stockholders’ Equity
For the Year Ended December 31, 20Y1

Common StockPaid-In
Capital in
Excess of
Stated ValuePaid-In
Capital from Sale of
Treasury StockRetained
EarningsTreasury
StockTotal

Balances, January 1 $$$$$$

Issued Common Stock

Net Income

Cash Dividends

Stock Dividends

$$$$$$

4. Prepare the “Stockholders’ Equity” section of the December 31, 20Y1, balance sheet. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Nav-Go Enterprises Inc.
Balance Sheet
December 31, 20Y1

Stockholders' Equity

Paid-In Capital:

Common Stock, $10 Stated Value (600,000 Shares Authorized, 494,000 Shares Issued)  

Excess of Issue Price Over Stated Value

From Sale of Treasury Stock

  Total Paid-In Capital

Retained Earnings  

Total

Treasury Stock (25,000 Shares, at Cost)  

Total Stockholders' Equity

Feedback

1. Remember that the numbers from the T accounts will used to prepare the statement of stockholders' equity and the balance sheet. As you post the journal entries it is important to work carefully. Check your work to insure that you have posted the correct numbers to the appropriate side of the T account. Also, make sure that your account totals are correct.

2. The purchase of treasury stock is typically recorded using the cost method. When the company resells shares of treasury stock pay attention to the price these shares are being sold for and the price originally paid to reacquire these shares. On the date of declaration of a cash dividend, the corporation is legally obligated to pay that dividend. When the company declares a cash or stock dividend keep in mind the previous stock transactions that have occurred; would these transactions have any affect on the amount of the cash dividend?

3. Review the example of the statement of stockholders' equity in the chapter. Pay particular attention to the treatment of dividends, and the purchase and sale of treasury stock. Recall that the statement of stockholders' equity shows the beginning balances of common stock and retained earnings. The common stock balance will be increased by any stock issued during the period and retained earnings will be increased by any net income, and decreased by any net losses and dividends.

4. A stockholders' equity section of the balance sheet is made up of separately reported paid-in capital, retained earnings, and treasury stock. Recall that paid-in capital includes separate reporting of each class of stock. Treasury stock held by a corporation reduces stockholders' equity.

Answer 1