Question

Headland Company reported the following amounts in the stockholders’ equity section of its December 31, 2016, balance sheet. Preferred stock, 9%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000 Common stock, $5 par (101,500 shares authorized, 20,300 shares issued) 101,500 Additional paid-in capital 130,000 Retained earnings 486,000 Total $897,500 During 2017, Headland took part in the following transactions concerning stockholders’ equity. 1. Paid the annual 2016 $9 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2016. 2. Purchased 1,800 shares of its own outstanding common stock for $41 per share. Headland uses the cost method. 3. Reissued 700 treasury shares for land valued at $31,400. 4. Issued 510 shares of preferred stock at $104 per share. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual 2017 $9 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018. Prepare journal entries to record the transactions described above. Prepare the December 31, 2017, stockholders’ equity section. Assume 2017 net income was $333,000.

Answer 1

1. In the books of Headland Company:

Transaction / Event	Account Titles	Debit	Credit
		$	$
1.	Dividends Payable: Preferred Stock	16,200
	Dividends Payable: Common Stock	40,600
	Cash		56,800
2.	Treasury Stock	73,800
	Cash		73,800
3.	Land	31,400
	Treasury Stock ( 700 x $ 41 )		28,700
	Paid-in Capital : Treasury Stock		2,700
4.	Cash ( 510 x $ 104 )	53,040
	Preferred Stock		51,000
	Additional Paid-in Capital: Preferred Stock		2,040
5.	Retained Earnings ( 1,920 shares x $ 45)	86,400
	Common Stock Dividend Distributable ( 1,920 x $ 5 )		9,600
	Additional Paid-in Capital: Common Stock		76,800
6.	Common Stock Dividend Distributable	9,600
	Common Stock		9,600
7.	Cash Dividends	63,030
	Dividends Payable: Preferred Stock ( 2,310 shares x $ 9)		20,790
	Dividends Payable: Common Stock ( 21,120 shares x $ 2 )		42,240
8.	Retained Earnings	63,030
	Cash Dividends		63,030
9.	Income Summary	333,000
	Retained Earnings		333,000

2.

Headland Company Balance Sheet ( Partial ) December 31, 2017 Stock holders' Equity
Paid-in Capital
Preferred Stock, 9 %, $ 100 par ( 10,000 share authorized, 2,310 shares issued)	$ 231,000
Common Stock , $ 5 par ( 101,500 authorized, 22,220 shares issued)	111,100
Additional Paid-in Capital: Preferred Stock	2,040
Additional Paid-in Capital: Common Stock	206,800
Paid-in Capital: Treasury Stock	2,700
Total Paid-in Capital		$ 553,640
Retained Earnings		669,570
Treasury Stock, at cost ( 1,100 shares at cost )		( 45,100)
Total Stockholders' Equity		$ 1,178,110