Question

National League Gear has two classes of stock authorized: 4%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2021, National League’s first year of operations:

February	2		Issue 1.5 million shares of common stock for $35 per share.
February	4		Issue 600,000 shares of preferred stock for $23 per share.
June	15		Purchase 150,000 shares of its own common stock for $30 per share.
August	15		Resell 112,500 shares of treasury stock for $45 per share.
November	1		Declare a cash dividend on its common stock of $1.50 per share and a $480,000 (4% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.)
November	30		Pay the dividends declared on November 1.

Record each of these transactions.

Answer 1

Date	Account title	Debit	credit
February 2	Cash (1,500,000*35)	52,500,000
	Common stock (1,500,000*5)		7,500,000
	Paid in capital in excess of par -common stock		45,000,000
February 4	Cash (600000*23)	13,800,000
	Preferred stock (600000*20)		12,000,000
	Paid in capital in excess of par -preferred stock		1,800,000
June 15	Treasury stock	4,500,000
	cash   (150000*30)		4,500,000
August 15	cash   (112500*45)	5,062,500
	Treasury stock (112500*30)		3,375,000
	paid in capital in excess of cost-treasury stock		1,687,500
November 1	Cash dividend-common stock	2,193,750
	Cash dividend-preferred stock	480,000
	Cash dividend payable		2,673,750
November 30	Cash dividend payable	2,673,750
	cash		2,673,750

#Number of common shares outstanding = 1500000-150000+112500=1462500

Common stock dividend = 1462500*1.5= 2193750