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 par
value
6/2/16. Issued 25,000 shares of preferred stock at a market price
of $25. The divident is payable semiannulally 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 divident on the 4% preferred
stock
12/31/16. Recorded a net loss of $29,000 for 2016
The following transactions occured 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 transactions
2. Prepare comparative stockholders' equity sections of the balance
sheet for the years ending December 31,2016 and 2016 in good
form
3. Calculate earnings-per-share for 2016 and 2017
Question 1
Weighted average cost of treasury stock = ((12000 X 8) + (20000 X 10))/32000 = $9.25 per share.
Transactions in 2017:
Date | Transactions in 2017 | Debit | Credit |
20-Jan-17 | Cash | 2,64,000 | |
Additional Paid up Capital | 60,500 | ||
Treasury Stock (9.25 X 22000 Shares) | 2,03,500 |
Dividends on preferred stock = 4% X 25 X 25000 X 6/12 = $500
Dividends on Common Stock = 0.96 X (120,000 - 32,000 + 22,000) = $105,600
Debit | Credit | ||
15-May-17 | Retained Earnings (Common Stock) | 1,05,600 | |
Retained Earnings(Preferred Stock) | 12,500 | ||
Dividend Payable | 1,18,100 |
Dividend Payable already includes $12,500 from the previous year, which was not paid in the previous cycle. Hence the total dividend to be paid is 118,100 + 12,500 = 130,600
Debit | Credit | ||
01-Jun-17 | Dividend Payable | 1,30,600 | |
Cash | 1,30,600 |
New stock issued as stock dividend = 120,000 X 5% X 10 / 10 = 6,000 Shares at $10 per share.
Debit | Credit | ||
15-Aug-17 | Retained Earnings | 60,000 | |
Common Stock | 60,000 |
Debit | Credit | ||
15-Oct-17 | Retained Earnings | 50,000 | |
Cash | 4,50,000 | ||
Common Stock | 5,00,000 |
Debit | Credit | ||
11-Nov-17 | Retained Earnings( Preferred Stock | 12,500 | |
Dividend Payable | 12,500 |
Debit | Credit | ||
01-Dec-17 | Dividend Payable | 12,500 | |
Cash | 12,500 |
31-Dec-17 | Net Income | 23,500 | |
Retained Earnings | 23,500 |
Question 2
Stockholders Equity | 2017 | 2016 |
Common Stock | 12,00,000 | 12,00,000 |
Less: Treasury Stock | -1,00,000 | -3,20,000 |
Common Stock Outstanding | 11,00,000 | 8,80,000 |
Preferred Stock | 6,25,000 | 6,25,000 |
Retained Earnings | -2,34,600 | -17,500 |
Additional Paid Up Capital | 60,500 | - |
26,50,900 | 23,67,500 |
Question 3
Earnings per Share for a Common stock in 2016 = (-29000 - 12500(Preference Dividend)) /88000 = -0.471
Earnings per Share for a Common stock in 2016 = (23500 - 25000(Preference Dividend)) /120000 = -0.0125