Question

I. Some of the account balances of Mali Company at December 31, 20x0 are shown below: 6% Preferred Stock ($100 par, 2,000 shares authorized) $ 20,000 PCIEP, Preferred 3,000 Common Stock ($10 par, 100,000 shares authorized) 500,000 PCIEP, Common 100,000 Retained Earnings 304,000 Treasury Stock-Preferred (50 shares at cost) 5,500 Treasury Stock-Common (1,000 shares at cost) 16,000 The price of the company’s common stock has been increasing steadily on the market; it was $21 on January 1, 20x1, advanced to $24 by July 1, and to $27 at the end of the year 20x1. The preferred stock was not openly traded, but was appraised at $120 per share during 20x1. 1) Give the proper journal entries for each of the following occurred in 20x1: (1) The company resold the 50 shares of preferred stock held in the treasury for $116 per share. (2) On July 1, the company declared a 5% stock dividend to the common stockholders. (3) On October 15, the company declared a cash dividend of $100,000. Assume the preferred stock is non-cumulative. Prepare two separate journal entries: common and preferred dividends. 2) Prepare the stockholders’ equity section of the balance sheet at December 31, 20x1

Answer 1

• Note: No dividend is given to shares held as “Treasury Stock”. Only Dividend to “outstanding” number of shares are given.
• General working and issued, outstanding number of shares:

Working #1
		No. of shares
	Par	Issued	Treasury Stock	Outstanding shares	Amount
	[A]	[B]	[C]	[B - C]	[D = A x B]
Preferred Stock	100	200	50	150	$        20,000.00
PCIEP - Preferred Stock					$          3,000.00
Common Stock	10	50000	1000	49000	$      500,000.00
PCIEP - Common Stock					$      100,000.00
Retained Earning					$      304,000.00
Less:		Cost per share
Treasury Stock - Preferred	50	$                                                                                                                    110.00			$          5,500.00
Treasury Stock - Common	1000	$                                                                                                                       16.00			$        16,000.00
Total Stockholder's Equity					$      905,500.00

• Other Workings

Working #2
Stock dividend to Common Stock holders
A	No. of common Stock outstanding	$        49,000.00
B	Stock Dividend rate	5%
C=A x B	No. of shares distributable as stock dividend	2450
D	Market value on Jul 1	$                24.00
E = C x D	Stock dividend amount	$        58,800.00
F = C x $10 par	Credited to Common Stock	$        24,500.00
G = E - F	Credited to PCIEP Common Stock	$        34,300.00

Working #3
Cash Dividend of $ 100,000
A	Total Cash Dividend	$      100,000.00
B	No. of Preferred Stock outstanding after reissue of Treasury stock	200
C	Par Value	$              100.00
D=B x C	Amount of Preferred Stock	$        20,000.00
E	Dividend rate to Preferred Stock shares	6%
F = D x E	Amount of Dividend to Preferred Stockholders	$          1,200.00
G = A - F	Amount of Dividend to Common Stock holders	$        98,800.00

• Journal Entries:

Date/Transaction no /Working	Accounts title	Debit	Credit
1	Cash	$                               5,800.00
	Treasury Stock - Preferred		$                 5,500.00
	Additional Paid in capital - Treasury Preferred Stock		$                     300.00
	(stock reissued)
2 (Jul 1)	Dividend	$                             58,800.00
Working #2	Common Stock		$               24,500.00
	PCIEP - Common Stock		$               34,300.00
	(Stock dividend distributed to o/s sshares)
3 (i) Oct 15	Dividend	$                               1,200.00
Working #3	Cash		$                 1,200.00
	(Cash dividend paid to preferred STock)
3 (ii) Oct 15	Dividend	$                             98,800.00
Working #3	Cash		$               98,800.00
	(Cash dividend paid to Common STock)
4	Retained earnings	$                           158,800.00
[100000 + 58800]	Dividend		$             158,800.00
	(Dividend account closed)
5	Additional Paid in capital - Treasury Preferred Stock	$                                   300.00
	Retained earnings		$                     300.00
	(Amount transferred to RE)

• Balance Sheet: Stockholders’ Equity Section on 31 Dec, 20x1

Stockholder's Equity Section
Paid in Capital:
Preferred Stock	[200 issued & outstanding at $100 par]	$        20,000.00
PCIEP - Preferred Stock		$           3,000.00
Common Stock	[52,450 issued, 51,450 outstanding, $10 par]	$      524,500.00
PCIEP - Common Stock		$      134,300.00
Total Paid in Capital		$      681,800.00
Retained Earning		$      145,500.00
Total		$      827,300.00
Less: Treasury Stock - Common Stock		$        16,000.00
Total Stockholder's Equity		$      811,300.00