In: Accounting
Mario Corporation started business on January 1, 2016. The board
of directors authorized the
following classes of stock:
4% Cumulative preferred stock - $25 par value
Authorized: 40,000
Common Stock - No par value
Authorized: 300,000
The following transactions occurred during 2016:
1/1/16 Issued 120,000 shares of common stock at $10 per
share.
6/2/16 Issued 25,000 shares of preferred stock at a market price of
$25. The dividend is
payable semiannually on 12/1 and 6/1 beginning 12/1/16.
6/23/16 Purchased 12,000 shares of treasury stock at $8 per
share.
10/1/16 Purchased 20,000 shares of treasury stock at $10 per
share.
12/1/16 Did not pay semiannual dividend on the 4% preferred
stock.
12/31/16 Recorded a net loss of $29,000 for 2016.
The following transactions occurred during 2017:
1/20/17 Sold 22,000 of treasury stock at a market price of $12.
Mario uses the weighted
average method to account for treasury stock.
5/15/17 Declared dividends on the 4% preferred stock and a dividend
of $.96 per common
share.
6/1/17 Paid all dividends declared on 5/15.
8/15/17 Distributed a 5% stock dividend on common shares
outstanding when the market
value of the stock was $10 per share.
10/15/17 Issued 50,000 shares of common stock at a market price of
$9 per share.
11/15/17 Declared dividends on the 4% preferred stock.
12/1/17 Paid dividends on the 4% preferred stock.
12/31/17 Recorded a net income of $23,500 for fiscal year
2017.
Required:
1. Record journal entries for each of the 2017 transaction.
2. Prepare comparative stockholders’ equity sections of the balance
sheet for the years
ending December 31, 2016 and 2017 in good form.
3. Calculate earnings-per-share for 2016 and 2017.
Calculation of weighted avg price:
On 6/2/16, 12000 shares purchased @ $8 = $96000
On 6/23/16, 20000 shares purchased @ $10 = $200000
Total 32000 shares purchased $296000
So, weighted avg price = 296000/32000 = $9
1. JOURNAL ENTRIES :
Date |
General Journal |
Dr. ($) |
Cr. ($) |
1-20-17 |
Cash/Bank A/c… Dr. (22000 shares sold @ $12 per share) |
264000 |
|
To Treasury Stock (@$9 per share) |
198000 |
||
To Paid in Capital from Treasury Stock(Profit@ $3 per share) |
66000 |
||
(Being 22000 shares from treasury stock sold) |
|||
5-15-17 |
Income statement A/c… Dr. |
130600 |
|
To Preferred Dividend Payable (25000*$25*4%) (note1) |
25000 |
||
To Equity Dividend Payable (110000*96%) (note1) |
105600 |
||
(Being the preferential and equitydividend is declared) |
|||
6-1-17 |
Preferred Dividend Payable A/c … Dr. |
25000 |
|
Equity Dividend Payable A/c |
105600 |
||
To Cash/Bank A/c |
130600 |
||
(Being the declared dividend is paid) |
|||
8-15-17 |
Retained earnings A/c… Dr. (110000*5%*10) |
55000 |
|
To Common Stock A/c |
55000 |
||
(Being 5% stock dividend distributed) |
|||
10-15-17 |
Cash/Bank A/c… Dr. (50000 shares @ $9 per share) |
450000 |
|
Discount on issue of stock A/c… Dr. |
50000 |
||
To Common Stock A/c |
500000 |
||
(Being 50000 shares issued @ $9) |
|||
11-15-17 |
Income statement A/c… Dr. |
12500 |
|
To Preferred Dividend Payable (25000*$25*4%/2) |
12500 |
||
(Being the preferential dividend is declared) |
|||
12-1-17 |
Preferred Dividend Payable A/c … Dr. |
12500 |
|
To Cash/Bank A/c |
12500 |
||
(Being the declared dividend is paid) |
|||
Note:
Only after the preferential dividend is fully declared, equity dividend can be declared.
Hence, though payable semi-annually, preferential dividend is payable for a year as was not paid on 12/2.
No of equity shares on 5/15/17 = 120000-20000+22000=110000 shares
2. Stockholder’s Equity Section
Stockholder’s Equity Section |
31-12-16 |
31-12-17 |
Common Stock, 300000 shares Authorised No par value, 120000 |
1,200,000 |
|
Common Stock, 300000 shares Authorised No par value, 175500 |
1,755,000 |
|
4% Preferred Stock, 40000 shares Authorised $25 par value, 25000 |
625,000 |
625,000 |
Paid in capital from Treasury stock |
66,000 |
|
Total Paid in capital |
1,825,000 |
2,380,000 |
Retained Earnings (23500-130600-55000-12500) |
(29,000) |
(174,600) |
Less : Discount on issue of stock |
(5,000) |
|
1,796,000 |
2,200,400 |
|
Less : Treasury Stock |
(296,000) |
(90,000) |
1,500,000 |
2,110,400 |
|
3. EPS Calculation
Net Income |
(29000) |
23500 |
Weighted avg no of shares |
109000 |
122479 |
(120000*6/12+108000*3/12+88000*3/12) |
(110000*7.5/12+115500*2/12+165500*2.5/12) |
|
EPS |
(0.27) |
0.19 |