Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par
ID: 2456525 • Letter: S
Question
Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par value common. As of the beginning of 2012, 1,000 shares of preferred stock have been issued and 20,000 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2012:
March 1 Issue 3,000 additional shares of common stock for $22 per share.
April 1 Issue 5,000 additional shares of preferred stock for $110 per share.
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share.
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.
Sweet Sixteen has the following beginning balances in its stockholders’ equity accounts on January 1, 2012: preferred stock, $100,000, common stock, $20,000; paid-in capital, $380,000; and retained earnings, $450,000. Net income for the year ended December 31, 2012, is $65,000.
Required:
1. Record each of these transactions.
2. Indicate whether each of these transactions would increase (+), decrease (), or have no effect (NE) on total assets, total liabilities, and total stockholders’ equity by completing the following chart.
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Declare cash dividends
Pay cash dividends
Repurchase treasury stock
Reissue treasury stock
3. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2012.
4. Prepare the statement of stockholders’ equity for the year ended December 31, 2012.
5. Explain how items 3 and 4 are similar and how they are different.
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Declare cash dividends
Pay cash dividends
Repurchase treasury stock
Reissue treasury stock
Explanation / Answer
Solution to Question 1.
March 1 Issue 3,000 additional shares of common stock for $22 per share.
Following is the journal entry:
Debit
Credit
Amount (in $)
Amount (in $)
Bank / Cash A/c
$ 66,000.00
To Common Stock capital A/c
$ 3,000.00
To Additional Paid in Capital A/c
$ 63,000.00
April 1 Issue 5,000 additional shares of preferred stock for $110 per share.
Following is the journal entry:
Debit
Credit
Amount (in $)
Amount (in $)
Bank / Cash A/c
$ 550,000.00
To Preferred Stock capital A/c
$ 500,000.00
To Additional Paid in Capital A/c
$ 50,000.00
June 1 declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
For common stock
Debit
Credit
Amount (in $)
Amount (in $)
Retained Earnings A/c
$ 23,000.00
To Dividend Payable A/c
$ 23,000.00
For preferred stock
Debit
Credit
Amount (in $)
Amount (in $)
Retained Earnings A/c
$ 30,000.00
To Dividend Payable A/c
$ 30,000.00
June 30 Pay the cash dividends declared on June 1.
Following is the journal entry:
For common stock
Debit
Credit
Amount (in $)
Amount (in $)
Dividend Payable A/c
$ 23,000.00
To Bank/Cash A/c
$ 23,000.00
For preferred stock
Debit
Credit
Amount (in $)
Amount (in $)
Dividend Payable A/c
$ 30,000.00
To Bank/Cash A/c
$ 30,000.00
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share.
Following is the journal entry:
Debit
Credit
Amount (in $)
Amount (in $)
Common Treasury Stock A/c
$ 36,000.00
To Bank/Cash A/c
$ 36,000.00
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.
Following is the journal entry:
Debit
Credit
Amount (in $)
Amount (in $)
Bank / Cash A/c
$ 20,000.00
To Common Treasury Stock capital A/c
$ 1,000.00
To Paid in Capital from treasury stock A/c
$ 19,000.00
Debit
Credit
Amount (in $)
Amount (in $)
Bank / Cash A/c
$ 66,000.00
To Common Stock capital A/c
$ 3,000.00
To Additional Paid in Capital A/c
$ 63,000.00
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