The stockholders\' equity accounts of Sigma Corporation on January 1, 2010, were

Question

The stockholders' equity accounts of Sigma Corporation on January 1, 2010, were as follows.


Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) $300,000
Common Stock ($5 stated value, 300,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par Value - Preferred Stock 15,000
Paid-in Capital in Excess of Stated Value - Common Stock 480,000
Retained Earnings 688,000
Treasury Stock - Common (5,000 shares) 40,000

During 2010 the corporation had these transactions and events pertaining to its stockholders' equity.


Feb. 1 Issued 5,000 shares of common stock for $30,000.
Mar. 20 Purchased 1,000 additional shares of common treasury stock at $7 per share.
Oct. 1 Declared a 8% cash dividend on preferred stock, payable November 1.
Nov. 1 Paid the dividend declared on October 1.
Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2010.
Dec. 31 Determined that net income for the year was $280,000. Paid the dividend declared on December 1.

Explanation / Answer

Dec. 1 Cash Dividends 99,500 Dividends Payable 99,500 $1,000,000 / $5 Stated Value = 200,000 shares issued 200,000 - 5,000 Treasury Stock + 5,000 New Issue - 1,000 Treasury Stock = 199,000 shares outstanding 199,000 x $0.50 = $99,500 Dividend Dec. 31 Income Summary 280000 Retained Earnings 280000 (To close income summary) Dr Income Summary 280,000 Cr Retained Earnings 280,000 (To close dividends) Dr Retained Earnings 123,500 Cr Dividends 123,500 24,000 + 99,500 = 123,500 (To pay dividends) Dr Dividends Payable 99,500 Cr Cash 99,500

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