Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par
ID: 2456571 • 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.
I WANT THE ANSWERS OF QUESTIONS 3,4,5
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
1. Record each of these transactions.
SR NO
DATE
DETAILS
DR
CR
1
March, 1
Bank A/c
$ 66,000
Common Stock A/c
$ 3000
Common Stock premium A/c
$ 63000
Common stock being issued at the premium of $ 21 per stock
2
April ,1
Bank A/c
$550,000
Preferred Stock A/c
$500,000
Preferred Stock premium A/c
$ 50,000
3
June, 1
Cash dividend due on Common stock A/c
$ 23000
Cash dividend due on Preferred stock
$ 30,000
Dividend Payable A/c
$ 53,000
Upon declaration of dividend liability is created in to the accounts.
4
June 30
Dividend Payable A/c
$ 53,000
Bank A/c
$ 53,000
Dividend declared on June 1 is paid now.
5
August ,1
Common Stock A/c
$ 2000
Common Stock premium A/c
$ 34000
Cash/Bank A/c
$ 36,000
Common stock being repurchased, resulting in reduction of common stock capital
6
October 1
Cash/ Bank A/c
$ 20,000
Common stock A/c
$ 1000
Common stock Premium A/c on reissue of Shares
$ 19000
Accounting entries for repurchased common stock being reissued at the premium of $ 19
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
Increase
Increase
Increase
Issue preferred stock
Increase
Increase
Increase
Declare cash dividends
No impact
Increase
Decrease
Pay cash dividends
Decrease
Decrease
No impact
Repurchase treasury stock
Cash assets decreased
Decreased
Decreased
Reissue treasury stock
Cash assets increased
Increased
increased
3. Stock Holders Equity as on December31, 2012
Liabilities side of balance sheet as on Dec 31, 2012
Contributed Capital:
A. Preferred Stock: $ 100,000
b. Common Stock: $ 20,000
Contributed Capital in excess of par $ 260,000
Total Contributed Capital $ 380,000
Retained Earnings $ 450,000
Total Stockholders’ Equity $ 830,000
3. Stock Holders EQUITY at the end of Financial Year 2012
Liabilities side of balance sheet for year ended Dec 31, 2012
Contributed Capital:
A. Preferred Stock: $ 100,000
b. Common Stock: $ 20,000
Contributed Capital in excess of par $ 260,000
Total Contributed Capital $ 380,000
Retained Earnings $ 515,000
Total Stockholders’ Equity $ 895,000
5. Notes Reason of Variation between two balances of stock holders equity
Note: Stock Holder’s equity will be different on both occasions. Because while closing the books for December 31, 2012, profits for the year will be taken to retained earnings. This will cause differences in the stockholders equity on these occasions.
SR NO
DATE
DETAILS
DR
CR
1
March, 1
Bank A/c
$ 66,000
Common Stock A/c
$ 3000
Common Stock premium A/c
$ 63000
Common stock being issued at the premium of $ 21 per stock
2
April ,1
Bank A/c
$550,000
Preferred Stock A/c
$500,000
Preferred Stock premium A/c
$ 50,000
3
June, 1
Cash dividend due on Common stock A/c
$ 23000
Cash dividend due on Preferred stock
$ 30,000
Dividend Payable A/c
$ 53,000
Upon declaration of dividend liability is created in to the accounts.
4
June 30
Dividend Payable A/c
$ 53,000
Bank A/c
$ 53,000
Dividend declared on June 1 is paid now.
5
August ,1
Common Stock A/c
$ 2000
Common Stock premium A/c
$ 34000
Cash/Bank A/c
$ 36,000
Common stock being repurchased, resulting in reduction of common stock capital
6
October 1
Cash/ Bank A/c
$ 20,000
Common stock A/c
$ 1000
Common stock Premium A/c on reissue of Shares
$ 19000
Accounting entries for repurchased common stock being reissued at the premium of $ 19
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