Some of the account balances of Mali Company at December 31, 20x0 are shown belo

Question

Some of the account balances of Mali Company at December 31, 20x0 are shown below:

6% Preferred Stock ($100 par, 2,000 shares authorized)                 $    20,000

PCIEP, Preferred                                                                                    3,000

Common Stock ($10 par, 100,000 shares authorized)                   500,000

PCIEP, Common                                                                                100,000

Retained Earnings                                                                               304,000

Treasury Stock-Preferred (50 shares at cost)                                       5,500

Treasury Stock-Common (1,000 shares at cost)                          16,000

           

The price of the company’s common stock has been increasing steadily on the market; it was $21 on January 1, 20x1, advanced to $24 by July 1, and to $27 at the end of the year 20x1. The preferred stock was not openly traded, but was appraised at $120 per share during 20x1.

1)     Give the proper journal entries for each of the following occurred in 20x1:

(1)   The company resold the 50 shares of preferred stock held in the treasury for $116 per share.

(2)   On July 1, the company declared a 5% stock dividend to the common stockholders.

(3)   On October 15, the company declared a cash dividend of $100,000. Assume the preferred stock is non-cumulative. Prepare two separate journal entries: common and preferred dividends.

2) Prepare the stockholders’ equity section of the balance sheet at December 31, 20x1

Explanation / Answer

Solution 1:

Solution 2:

Journal Entries - Mali Company Event Particulars Debit Credit 1 Cash Dr $5,800.00          To Treasury Stock - Preferred $5,500.00          To Additional Paid in capital $300.00 (To record sale of treasury stock) 2a Stock Dividend Dr (49000*5%*$24) $58,800.00          To Stock dividend distributable $58,800.00 (To declare stock dividend) 2b Stock dividend distributable Dr $58,800.00          To Common Stock (49000*5%*$10) $24,500.00          To PCEIP - Common $34,300.00 (To distributed stock dividend) 3a Preferred Dividends Dr ($20,000*6%) $1,200.00          To Dividend payable $1,200.00 (To record declaration preferred dividend) 3b Common Dividends Dr $98,800.00          To Dividend payable $98,800.00 (To record declaration common dividend) 3c Dividend payable Dr $100,000.00          To Cash $100,000.00 (To record payment of cash dividend)

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