Zinnia Company: Zinnia Company incorporated on January 1, 2017. The company had

Question

Zinnia Company:

Zinnia Company incorporated on January 1, 2017.  The company had authorized 1,500,000 shares of common stock, with a par value of $5 per share.  The company had the following transactions during 2017:

Jan. 15     Issued 50,000 shares of common stock for $8 per share.

Sept.  1   Repurchased  5,000 shares of their common stock for $7 per share.

Nov. 1      Declared a $.50 per share cash dividend to be paid on Dec. 30 to stockholders of record on Dec. 1.

Required:

1.  Prepare the necessary journal entries to record the above transactions.  (12 points)

2.  Assume that Zinnia Company declared a 15% stock dividendon Nov. 1 instead of a cash dividend.  If the stock was trading at $10 per share on Nov. 1, what journal entry would the company record on Nov. 1?  (3 points)

Explanation / Answer

Journal Entries Date Account Title and explanation Debit Credit Cash ( 50,000 shares X $ 8) $                   4,00,000 Jan, 15 2017          To Common Stock (50,000 shares X $ 5) $                 2,50,000          To Addittional paid in capital - common Stock $                 1,50,000 (To Record the issue of common shares ) Treasurry Stock (5000 Shares X $ 7 ) $                       35,000 Sept, 01 2017      To Cash $                     35,000 (To Record the purchase of treasurry stock) Nov, 01 2017 Retained Earnings $                       22,500       To Dividend Payable $                     22,500 (To record the dividend declares) Notes: total issue of shares =                           50,000 Less: Purchase as treasurry stock                              5,000 Eligible for Dividend                           45,000 X By Dividend per shares = $                            0.50 total Dividend = $                 22,500.00 Record the stock dividend in place of cash dividend Retained Earning ( 6,750 Shares X $ 10 ) $                       67,500 Nov, 01 2017        To Common Stock Dividend Distributable $                     67,500 (To Record the stock dividend) total issue of shares =                           50,000 Less: Purchase as treasurry stock                              5,000 Eligible for Stock Dividend                           45,000 X By Dividend per shares = 15% Total new shares issue =                        6,750.00

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