Question

Major League Apparel has two classes of stock authorized: 4%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2018, its first year of operations: January 2 Issue 120,000 shares of common stock for $62 per share. February 14 Issue 52,000 shares of preferred stock for $13 per share. May 8 Repurchase 12,000 shares of its own common stock for $52 per share. May 31 Reissue 6,000 shares of treasury stock for $57 per share. December 1 Declare a cash dividend on its common stock of $0.60 per share and a $20,800 (4% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.) December 30 Pay the cash dividends declared on December 1.

1. RECORD THE TRANSACTIONS

2. 2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. Net income for the year was $482,000.

Answer 1

Answer

1.

General Journal:

Date	Particulars	Dr	Cr
2-Jan	Cash	7440000
	Common stock		120000
	Additonal paid-in capital		7320000
14-Feb	Cash	676000
	Preferred stock		520000
	Additonal paid-in capital		156000
8-May	Treasury stock	624000
	Cash		624000
31-May	Cash	342000
	Treasury stock		312000
	Additonal paid-in capital		30000
1-Dec	Dividends	98200
	Dividends payable		98200
15-Dec	No journal entry required
30-Dec	Dividends payable	98200
	Cash		98200

Calculations For dividend:

120,000 - 12,000(repurchase) + 6,000(reissue) =114,000shares

Common Stock devidends (114,000* 0.70) =79,800

Preferred Stock Dividends                        = 18,400

Total                                                       =98200

2.

The stockholders’ equity section of the balance sheet as of December 31, 2018:

Particulars	Amount	Amount
Preferred Stock (52,000* $10)	520000
Common Stock(120,000 * 1)	120000
Additional Paid in capital:
Preferred Stock(52,000 *$3)	156000
Common stock(120,000 *$61)	7320000
Total Paid in capital		8116000
Retained Earnings:		383800
Less: Treasury stock		(312000)
Total Stockholder Equity		8187800

Note

Retained Earnings:Net income - dividends

=$482000-$98200 = $383800

Treasury stock 12,000 * $52         =$624,000

Less: reissure 6000 *$52        = $312,000

Total                                            =$312,000