National League Gear has two classes of stock authorized: 6%, $20 par preferred,

Question

National League Gear has two classes of stock authorized: 6%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2015, National League’s first year of operations:

Declare a cash dividend on its common stock of $1.00 per share and a $600,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders on record on November 15. (Hint: Dividends are not paid on treasury stock.)

30   

Pay the dividends declared on November 1.

Record each of these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Prepare the stockholders’ equity section of the balance sheet as of December 31, 2015. Net income for the year was $4,800,000. (Amounts to be deducted should be indicated by a minus sign.)

February 2    Issue 1.0 million shares of common stock for $25 per share. February 4    Issue 500,000 shares of preferred stock for $22 per share. June 15    Repurchase 100,000 shares of its own common stock for $20 per share. August 15    Reissue 75,000 shares of treasury stock for $35 per share. November 1   

Declare a cash dividend on its common stock of $1.00 per share and a $600,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders on record on November 15. (Hint: Dividends are not paid on treasury stock.)

November

30   

Pay the dividends declared on November 1.

1.

Record each of these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2.

Prepare the stockholders’ equity section of the balance sheet as of December 31, 2015. Net income for the year was $4,800,000. (Amounts to be deducted should be indicated by a minus sign.)

Explanation / Answer

Solution:

(A).

   Cash ( 10,00,000 * 25) 25,000,000

Prefered Stock (5,00,000 * 22) 11,000,0000

Prefered Cash Dividend 6,00,000

   Cash Dividend 1,00,000

Treasury Stock 13,300,000

(B).

Dividend Declared 6,00,000

Cash 6,00,000

(C).

Common Stock Share 20,00,000

   Cash 20,00,000

(D).

Cash (75,000 * 35) 26,25,000

Reissue of hares 26,25,000

(2). Caluculation of Share holders Equity:

Stock holder's Equity = Assets - Liabilities

   = 48,00,000 - 36,00,000

   = 12,00,000

     

   Liabilities:

   Dividends 6,00,000

   Declared Dividend 10,00,000

Prefered Stock 20,00,000

Total = 36,00,000

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