Two classes of stock authorized: $100 par preferred and $2 par common how do you

ID: 2381139 • Letter: T

Question

Two classes of stock authorized: $100 par preferred and $2 par common

how do you record this transaction?

May 18 Issues 30,000 additional shares of $2 common stock for $75 per share.

May 25 Issue 8,000 shares of preferred stock for $125 per share.

July 1 Declare a cash dividend of $1.25 per share on common stock and $3.00 per share on preferred stock to all stockholders of

record on July 15.

July 31 Pay the cash dividend declared on July 1.

August 15 Repurchase 9000 shares of treasury stock for $70 per share.

October 1 Reissue 4000 shares of treasury stock purchased on August 15 for $75 per share.

Explanation / Answer

May-18

Debit cash [30000*75] = 2250000

Credit common stock [30000*2] =60000

Credit cash paid in excess of capital [30000*(75-2)] =2190000

May -25

Debit cash [8000*125] =1000000

Credit preferred stock =1000000

July-1

Debit dividend on common stock [1.25*30000] =37500

Debit dividend on preferred stock [3*8000] =24000

Credit dividend payable on common stock = 37500

Credit dividend payable on preferred stock=24000

July 31

Debit dividend payable on common stock = 37500

Debit dividend payable on preferred stock=24000

Credit cash [37500+24000] =61500

August 15

Debit treasury stock [9000*70] =630000

Credit cash = 630000

October -1

Debit cash [4000*75 ] =300000

Credit treasury stock [4000*70] = 280000

Credit cash paid in excess of capital [4000*5] =20000