Question

Teal Company reported the following amounts in the stockholders’ equity section of its December 31, 2016, balance sheet.

Preferred stock, 9%, $100 par (10,000 shares authorized, 2,100 shares issued) $210,000

Common stock, $5 par (99,000 shares authorized, 19,800 shares issued) 99,000

Additional paid-in capital 137,000

Retained earnings 410,000

Total $856,000

During 2017, Teal took part in the following transactions concerning stockholders’ equity.

1. Paid the annual 2016 $9 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2016.

2. Purchased 1,900 shares of its own outstanding common stock for $39 per share. Teal uses the cost method.

3. Reissued 700 treasury shares for land valued at $31,500.

4. Issued 530 shares of preferred stock at $105 per share.

5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $47 per share.

6. Issued the stock dividend.

7. Declared the annual 2017 $9 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018.

Prepare journal entries to record the transactions described above

Answer 1

Transaction	Account title and explanation	Debit	Credit
1	Dividends payable-Preferred [2,100 x $9]	$18,900
	Dividends payable-Common [19,800 x $2]	$39,600
	Cash		$58,500
	[Paid cash dividends]
2	Treasury stock [1,900 x $39]	$74,100
	Cash		$74,100
	[Purchase of own shares]
3	Land	$31,500
	Treasury stock [700 x $39]		$27,300
	Paid-in capital in excess from treasury stock		$4,200
	[Re-issued treasury stock for land]
4	Cash [530 x $105]	$55,650
	Preferred stock [530 x $100]		$53,000
	Paid-in capital in excess of par, preferred		$2,650
	[Issued preferred stock for cash]
5	Retained Earnings [1860 x $47]	$87,420
	Common Stock dividend distributable [1,860 x $5]		$9,300
	Paid-in Capital in Excess of Par-Common		$78,120
	[Stock dividend declared]
6	Common Stock dividend distributable	$9,300
	Common stock		$9,300
	[Issued stock dividend]
7	Retained earnings	$64,590
	Dividends payable-preferred [2,630 x $9]		$23,670
	Dividends payable-common [20460 x $2]		$40,920
	[Declared cash dividends]

Calculations:

Common shares outstanding
Beginning	19800
Treasury stock	-1900
Re-issue of treasury stock	700
Balance	18600
Stock dividend	1860
Balance	20460

Preferred stock outstanding
Beginning	2100
New issue	530
Balance	2630