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In: Accounting

Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common....

Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common. As of the beginning of 2018, 340 shares of preferred stock and 4,400 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2018:

March 1 Issues 1,500 shares of common stock for $46 per share.

May 15 Purchase 440 shares of treasury stock for $39 per share.

July 10 Reissues 240 shares of treasury stock purchased on May 15 for $44 per share.

October 15 Issues 240 shares of preferred stock for $49 per share.

December 1 Declare a cash dividend on both common and preferred stock of $0.90 per share to all stockholders of record on December 15. (Hint: Dividends are not paid on treasury stock.)

December 31 Pay the cash dividends declared on December 1.

Donnie Hilfiger has the following beginning balances in its stockholders’ equity accounts on January 1, 2018: Preferred Stock, $340; Common Stock, $44; Additional Paid-in Capital, $78,000; and Retained Earnings, $31,300. Net income for the year ended December 31, 2018, is $11,600.

It wants me to record the entry to December 15th for the dividends and I do not understand. It spefically says "Record the entry on the date of record".

Solutions

Expert Solution

Date Accounts Titles & Explanation Debit ($) Credit ($)
March 1 Cash (1,500 shares * $35) 52,500
Common Stock (1,500 shares * $0.01) 15
Addtional Paid in Capital - Common Stock 52,485
(To record issue of common stock)
May 15 Treasury Stock (440 shares* $39) 17,160
Cash 17,160
(To record purchase of treasury stock)
July 10 Cash (240 shares $44) 10,560
Treasury Stock (240 shares* $39) 9,360
Addtional Paid in Capital - Treasury Stock 1,200
(To record reissue of treasury stock)
October 15 Cash (240 shars * $49) 11,760
Preferred Stock (240 shars * $1) 240
Addtional Paid in Capital - Preferred Stock 11,520
(To record issue of preferred stock)
December 1

Retained Earnings

(Div on preferred stock = [(340 + 240) *$0.90] = $522

Div. common stock = [(4,400 +1,500 - 440 +240) * $0.90)] = $5,130

5,652
Dividends Payable 5,652
(To record dividend payable)
December 15 NO ENTRY
December 31 Dividends Payable 5,652
Cash 5,652
(To record payment of dividends)

Note : No entry is required on date to record.


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