Question

At the end of 2019, Jeffco Inc. had the following equity accounts and balances:

Common stock, $10 par	$800,000
Additional paid-in capital—common stock	200,000
Retained earnings	279,000

During 2020, Jeffco engaged in the following transactions involving its equity accounts:

Sold 8,000 shares of common stock for $35 per share.

Sold 1,000 shares of 9%, $120 par preferred stock at $125 per share.

Declared and paid cash dividends of $14,000.

Repurchased 600 shares of treasury stock (common) for $45 per share.

Sold 100 of the treasury shares for $51 per share.

Required:

1. Prepare the journal entries for Transactions a through e.

2. Assume that 2020 net income was $93,000. Prepare a statement of stockholders' equity at December 31, 2020.

Answer 1

Solution 1:

Jeffco inc.
S. no.	Account Title	Debit	Credit
a. 2020	Cash Dr (8000*$35)	280000
	To Common Stock (8000*$10)		80000
	To Additional paid in Capital- common stock		200000
	(Record issue of common shares)
b.	Cash Dr (1000*$125)	125000
	To Preferred Stock (1000*$120)		120000
	To Additional paid in Capital- preferred stock		5000
	(Record issue of preferred shares)
c.	Retained Earnings (or Dividends)	14000
	Cash		14000
	(Record declaration and payment of dividends)
d.	Treasury Stock Dr	27000
	To Cash ($45*600)		27000
	(Record repurchase of common shares)
e.	Cash Dr (100*$51)	5100
	To Treasury Stock (100* $45)		4500
	To Paid in capital from treasury stock		600
	(Record sale of treasury shares)

Solution 2:

Jeffco, Inc.
Statement of Financial Position (Partial)
December 31, 2020
Shareholders' equity:
Preferred shares, 9%, $120 stated value	120000
Common shares, no par ($800,000+$80,000)	880000
Additional Paid In Capital:
Additional paid in Capital- Preferred stock	5000
Additional paid in Capital- Common stock (200,000+200,000)	400000
Total capital stock	1405000
Retained earnings ($279000-$14000+$93000)	358000
Subtotal	1763000
Less: Treasury Stock (27000 - 4500)	-22500
Total shareholders' equity	1740500