Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01

Question

Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common. As of the beginning of 2018, 200 shares of preferred stock and 2,800 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2018:

March 1 Issue 1,000 shares of common stock for $30 per share.

May 15 Purchase 600 shares of treasury stock for $23 per share.

July 10 Reissue 100 shares of treasury stock purchased on May 15 for $28 per share.

October 15 Issue 100 shares of preferred stock for $33 per share.

December 1 Declare a cash dividend on both common and preferred stock of $0.85 per share to all stockholders of record on December 15. (Hint: Dividends are not paid on treasury stock.)

December 31 Pay the cash dividends declared on December 1.

Donnie Hilfiger has the following beginning balances in its stockholders’ equity accounts on January 1, 2018: Preferred Stock, $200; Common Stock, $28; Additional Paid-in Capital, $64,000; and Retained Earnings, $24,500. Net income for the year ended December 31, 2018, is $9,600.

Taking into consideration the beginning balances on January 1, 2018 and all the transactions during 2018, respond to the following for Donnie Hilfiger:

Required:

1. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)

2. Prepare the statement of stockholders’ equity for the year ended December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)

DONNIE HILFIGER Balance Sheet (Stockholders' Equity Section) December 31, 2018 Stockholders' equity: Total paid-in capital Total stockholders' equity

Explanation / Answer

Date Account Debit Credit Mar 1 Cash (1000*30) 30000 Common Stock (1000*0.01) 10 Paid-in Capital in Excess of Par Value--Common (1000*(30-0.01) 29990 (Issue 1,000 shares of common stock for $30 per share) Mar 15 Treasury Stock 600*23 13800 Cash 13800 (purcahse of treasury stock) Jul 10 Cash 100*28 2800 Treasury Stock 100*23 2300 Paid-in Capital on Sale of Treasury Stock 500 (reissue of treasury stock) Oct15 Cash 100*33 3300 Preferred Stock 100*1 100 Paid-in Capital in Excess of Par Value--Preferred 3200 (issue preferred stock at 33) Dec 1 Retained Earning 0.85*(200+100+28+10) 287.3 Dividend Payable 287.3 Dec 13 Dividend Payable 287.3 Cash 287.3 1. Stock holder equity section Stockholder Equity: Preferred Stock, 1 par value (200+100) 300 Common Stock, 0.01 par value 38 Paid-in Capital 97190 (64000+29990+3200) Retained Earning (24500+9600-287.3) 33813 Treasury Stock -11500 Paid in Capital-Treasury Stock 500 Total 120341 2. Stockholder Equity Preferred Stock Common Stock Additional Paid in capital Retained Earnings Treasury Stock Total Equity Balance, beginning 200 28 64000 24500 0 88728 Issue of common stock 10 29990 30000 Purchase of treasury stock -13800 -13800 Sale of treasury stock 500 2300 2800 Issue preferred stock 100 3200 3300 Dividends -287.3 -287.3 Net Income 9600 9600 Balance, ending 300 38 97690 33813 -11500 120341

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