Question

National League Gear has two classes of stock authorized: 5%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2018, National League’s first year of operations:

February 2 Issue 1.5 million shares of common stock for $30 per share.

February 4 Issue 550,000 shares of preferred stock for $24 per share.

June 15 Repurchase 150,000 shares of its own common stock for $25 per share.

August 15 Reissue 112,500 shares of treasury stock for $40 per share.

November 1 Declare a cash dividend on its common stock of $1.50 per share and a $550,000 (5% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.)

November 30 Pay the dividends declared on November 1.

1.Record each journal entry for these transactions.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. Net income for the year was $4,850,000.

Answer 1