Armstrong Corporation started business on January 1, 2015. The board of director
ID: 2569292 • Letter: A
Question
Armstrong Corporation started business on January 1, 2015. The board of directors authorized the following classes of stock:
6% Cumulative preferred stock - $30 par value
Authorized: 60,000
Common Stock - $1 par value
Authorized: 250,000
The following transactions occurred during 2015:
1/1/15 Issued 116,000 shares of common stock at $12 per share.
3/2/15 Issued 22,000 shares of preferred stock at a market price of $30. The dividend is payable semiannually on 9/1 and 3/1 beginning 9/1/15.
6/23/15 Purchased 7,000 shares of treasury stock at $10 per share.
9/1/15 Paid the semiannual dividend on the 6% preferred stock.
10/1/15 Purchased 15,000 shares of treasury stock at $11 per share.
12/31/15 Recorded a net loss of $264,600.
The following transactions occurred during 2016:
1/20/16 Sold 9,800 of treasury stock at a market price of $13. Armstrong uses the weighted average method to account for treasury stock.
2/15/16 Declared a dividend of $.52 per common share.
3/1/16 Paid the semiannual dividend on the 6% preferred stock and the common stock dividend declared on 2/15.
8/1/16 Purchased 6,000 shares of treasury stock at a market price of $11 per share.
8/15/16 Declared a 5% stock dividend on common shares outstanding when the market value of the stock was $11 per share.
9/1/16 Paid the semiannual dividend on the 6% preferred stock.
10/15/16 Issued 45,000 shares of common stock at a market price of $14 per share.
12/31/16 Recorded a net loss of $375,400 for fiscal year 2016.
Required:
1. Record journal entries for each of the 2016 transaction.
2. Prepare statements of stockholders’ equity for the years ending December 31, 2015 and 2016 in good form.
3. Calculate earnings-per-share for 2015 and 2016.
Explanation / Answer
1. Journal Entry for 2016
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
20/01/2016
Cash
TO Treasury stock
TO Additional paid-in capital – Treasury stock
(See Note 1)
127,400
104,682
22,718
15/02/2016
Retained Earnings
TO Dividend Payable
(being dividends declared)
(See Note 2)
53,976
53,976
01/03/2016
Dividend on Preferred stock
Dividend Payable
TO Cash
(See Note 3)
19,800
53,976
73,776
01/08/2016
Treasury Stock
TO Cash
66,000
66,000
15/08/2016
Retained Earnings
TO Dividend Payable
(97,800 shares x $1 x 5%)
4,890
4,890
01/09/2016
Dividend on preferred stock
TO Cash
19,800
19,800
15/10/2016
Cash
TO Common Stock
TO Additional paid in capital – common stock
630,000
45,000
585,000
Note 1: Calculation of weighted cost of stock
Purchased 7,000 shares = 7,000 x $10 = $70,000
Purchased 15,000 shares = 15,000 x $11 = $165,000
Total Cost of treasury stock = $235,000
Weighted cost of each stock = $235,000 / 22,000 = $10.6818
Note 2: Calculation of outstanding common stock
Outstanding stock = Issued stock – purchase of treasury stock
= 116,000 – 7,000 – 15,000 + 9,800 = 103,800shares
Note 3: Calculation of Dividend paid on preferred stock
Dividend = 22,000 shares x $30 par value x 6% / 2 = $19,800
Note 4: In the given case, there is net losses in both the years and since the company has started business in 2015 only, there will no retained earnings accumulated. But there will be debit balance in retained earnings account due to losses. It has assumed that company is declaring and paying dividends out of equity capital only and therefore, we have debited retained earnings account in dividend declaration entry.
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
20/01/2016
Cash
TO Treasury stock
TO Additional paid-in capital – Treasury stock
(See Note 1)
127,400
104,682
22,718
15/02/2016
Retained Earnings
TO Dividend Payable
(being dividends declared)
(See Note 2)
53,976
53,976
01/03/2016
Dividend on Preferred stock
Dividend Payable
TO Cash
(See Note 3)
19,800
53,976
73,776
01/08/2016
Treasury Stock
TO Cash
66,000
66,000
15/08/2016
Retained Earnings
TO Dividend Payable
(97,800 shares x $1 x 5%)
4,890
4,890
01/09/2016
Dividend on preferred stock
TO Cash
19,800
19,800
15/10/2016
Cash
TO Common Stock
TO Additional paid in capital – common stock
630,000
45,000
585,000
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