Question

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

Solution 1:

Journal Entries - Mali Company
Event	Particulars	Debit	Credit
1	Cash Dr	$5,800.00
	To Treasury Stock - Preferred		$5,500.00
	To Additional Paid in capital		$300.00
	(To record sale of treasury stock)
2a	Stock Dividend Dr (49000*5%*$24)	$58,800.00
	To Stock dividend distributable		$58,800.00
	(To declare stock dividend)
2b	Stock dividend distributable Dr	$58,800.00
	To Common Stock (49000*5%*$10)		$24,500.00
	To PCEIP - Common		$34,300.00
	(To distributed stock dividend)
3a	Preferred Dividends Dr ($20,000*6%)	$1,200.00
	To Dividend payable		$1,200.00
	(To record declaration preferred dividend)
3b	Common Dividends Dr	$98,800.00
	To Dividend payable		$98,800.00
	(To record declaration common dividend)
3c	Dividend payable Dr	$100,000.00
	To Cash		$100,000.00
	(To record payment of cash dividend)

Solution 2:

Mali Company
Balance Sheet - Stockholder's Equity Section
December 31 20X1
Particulars	Amount
Stockholders Equity:
Common Stock, $10 par, 100,000 shares authorized, 52,450 shares Issued and outstanding	$524,500.00
Preferred Stock, $100 par, 2,000 shares authorized, 200 shares Issued and outstanding	$20,000.00
PCIEP - Preferred	$3,000.00
PCIEP - Common ($100,000 + $34,300)	$134,300.00
Additional paid in capital - Treasury stock	$300.00
Total contributed capital	$682,100.00
Retained Earnings ($304,000 - $158,800)	$145,200.00
Treasury Stock - Common	-$16,000.00
Total Stockholder's Equity	$811,300.00