Question

Stockholders' Equity: Transactions and Statement
The stockholders' equity section of Night Corporation's balance sheet at January 1 follows:

Common stock, $8 par value, 300,000 shares authorized, 60,000 shares		480,000
issued, 6,000 shares in treasury
Additional paid-in capital
In excess of par value	720,000
From treasury stock	45,000	765,000
Retained earnings		522,000
		1,767,000
Less: Treasury stock (6,000 shares) at cost		207,000
Total Stockholders’ Equity		1,560,000

The following transactions affecting stockholders’ equity occurred during the year:

Jan.	8	Issued 15,000 shares of previously unissued common stock for $31 cash per share.
Mar.	12	Sold all of the treasury shares for $42 cash per share.
June	30	Declared a five percent stock dividend on all outstanding shares of common stock. The market value of the stock was $37 per share.
July	10	Issued the stock dividend declared on June 30.
Oct.	7	Acquired 2,500 shares of common stock as treasury stock at $39 cash per share.
Dec.	18	Declared a cash dividend of $1.00 per outstanding common share, payable on January 9 to stockholders of record on December 31.

Required
a. Prepare journal entries to record the foregoing transactions.
b. Prepare a statement of stockholders’ equity. Net income for the year is $511,500.

• Journal Entries
• Statement of Stockholders' Equity

General Journal
Date	Description	Debit	Credit
Jan.8	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Paid-in-Capital in Excess of Par Value	Answer	Answer
	Issued shares of common stock.
Mar.12	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Paid-in-Capital from Treasury Stock	Answer	Answer
	Sold shares of treasury stock.
Jun.30	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Paid-in-Capital in Excess of Par Value	Answer	Answer
	Declared stock dividend.
Jul.10	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Issued shares of common stock declared as dividend.
Oct.7	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Purchased shares of common stock for treasury.
Dec.18	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Declared cash dividend.
Dec.31	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	To close the income summary account.
Dec.31	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	Stock dividends	Answer	Answer
	AnswerCashCommon StockPaid-in-Capital in Excess of Par ValueTreasury StockPaid-in-Capital from Treasury StockStock DividendsStock Dividend DistributableCash DividendsDividends PayableIncome SummaryRetained earnings	Answer	Answer
	To close the dividend accounts.

Answer 1

a.

General Journal
Date	Description	Debit	Credit
Jan. 8	Cash (15000 x $31)	465000
	Common stock (15000 x $8)		120000
	Paid-in-Capital in Excess of Par Value [15000 x ($31 - $8)]		345000
	Issued shares of common stock.
Mar. 12	Cash (6000 x $42)	252000
	Treasury stock		207000
	Paid-in-Capital from Treasury Stock		45000
	Sold shares of treasury stock.
Jun. 30	Stock dividends (3750* x $37)	138750
	Stock dividend distributable (3750 x $8)		30000
	Paid-in-Capital in Excess of Par Value [3750 x ($37 - $8)]		108750
	Declared stock dividend.
Jul. 10	Stock dividend distributable	30000
	Common stock		30000
	Issued shares of common stock declared as dividend.
Oct. 7	Treasury stock (2500 x $39)	97500
	Cash		97500
	Purchased shares of common stock for treasury.
Dec. 18	Cash dividends (76250** x $1)	76250
	Dividends payable		76250
	Declared cash dividend.
Dec. 31	Income summary	511500
	Retained earnings		511500
	To close the income summary account.
Dec. 31	Retained earnings	215000
	Stock dividends		138750
	Cash dividends		76250
	To close the dividend accounts.

*Number of shares of common stock issued as stock dividend = 5% x (60000 - 6000 + 15000 + 6000) = 5% x 75000 = 3750 shares

**Number of shares of common stock outstanding = 75000 + 3750 - 2500 = 76250 shares

b.

Night Corporation
Statement of Stockholders' Equity
For the Year Ended December 31
	Common Stock	Paid-In-Capital in Excess of Par	Paid-in-Capital from Treasury Stock	Retained Earnings	Treasury Stock	Total
Balance, January 1	480000	720000	45000	522000	-207000	1560000
15,000 common shares issued	120000	345000	0	0	0	465000
6,000 treasury shares sold	0	0	45000	0	207000	252000
Stock dividends issued	30000	108750	0	-138750	0	0
2,500 treasury shares acquired	0	0	0	0	-97500	-97500
Cash dividends declared	0	0	0	-76250	0	-76250
Net income	0	0	0	511500	0	511500
Balance, December 31	630000	1173750	90000	818500	-97500	2614750

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