Question

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

Preferred stock, 10%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000

Common stock, $5 par (94,000 shares authorized, 18,800 shares issued) 94,000

Additional paid-in capital 131,000 Retained earnings 478,000 Total $883,000

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

1. Paid the annual 2016 $10 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 1,500 shares of its own outstanding common stock for $43 per share. Monty uses the cost method.

3. Reissued 800 treasury shares for land valued at $36,200.

4. Issued 540 shares of preferred stock at $104 per share.

5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $41 per share.

6. Issued the stock dividend.

7. Declared the annual 2017 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018.

a. Prepare journal entries to record the transactions described above.

b. Prepare the December 31, 2017, stockholders’ equity section. Assume 2017 net income was $347,000.

Answer 1

SOLUTION

1. Journal Entries-

S.No.	Accounts title and Explanations	Debit ($)	Credit ($)
1.	Dividends Payable- Preferred (1,800 * $10)	18,000
	Dividends Payable- Common (18,800 * $2)	37,600
	Cash		55,600
2.	Treasury Stock	64,500
	Cash (1,500 * $43)		64,500
3.	Land	36,200
	Treasury Stock (800 * $43)		34,400
	Paid-in Capital From Treasury Stock		1,800
4.	Cash (540 * $104)	56,160
	Preferred Stock (540 * $100)		54,000
	Paid-in Capital in Excess of Par- Preferred		2,160
5.	Retained Earnings* (1,810 * $41)	74,210
	Common Stock Dividend Distributable (1,810 * $5)		9,050
	Paid-in Capital in Excess of Par - Common		65,160
6.	Common Stock Dividend Distributable	9,050
	Common Stock		9,050
7.	Retained Earnings	63,220
	Dividends Payable- Preferred [(1,800+540)*$10]		23,400
	Dividends Payable- Common [(18,100+1,810)*$2]		39,820

* Retained earnings - 18,800 - 1,500 + 800 = 18,100* 10% = 1,810