Question 4: Shareholders\' Equity [28 points] Bay State Corporation has the foll

Question

Question 4: Shareholders' Equity [28 points] Bay State Corporation has the following capital structure at the beginning of 2018 9% Cumulative Preferred stock, $100 par value, 100,000 shares authorized, 20,000 shares issued and outstanding $ 2,000,000 Common stock, $1 par value, 10,000,000 shares authorized, 2,600,000 shares issued and 2,578,000 shares outstanding 2,6 2,600,000 1,080,000 14,000 5,694,000 1,560,000 (550,000) Paid-in capital, share repurchase... Total paid-in capital. Retained earnings. Treasury stock (22,000 shares, at cost of $25/share)....r. Total stockholders' equity The preferred dividends for 2017 were in arrears. In 2018, the company had the following transactions, which occurred consecutively. Prepare general journal entries to record these transactions. Assume that the company uses the cost method with FIFO assumption to account for its treasury stock transactions The company purchased 40,000 shares of its common stock as treasury shares at $28.50 per share 1. Account name Debit Credit 2. The company declared annual cash dividends on its preferred shares (including dividends in arrears), and a $0.20 per-share cash dividend on its common shareis Account name Debit Credit

Explanation / Answer

9.

Calculations:

Account Name Debit Credit 1 Treasury stock (40000 x $28.50) 1140000 Cash 1140000 (To record purchase of treasury stock) 2 Preferred dividends (20000 x $100 x 9% x 2 years) 360000 Dividends on common stock [(2578000 - 40000) x $0.20] 507600 Preferred dividend payable 360000 Dividends payable on common stock 507600 (To record dividends declared) 3 Preferred dividend payable 360000 Dividends payable on common stock 507600 Cash 867600 (To record payment of dividends declared) 4 Cash (24000 x $26.60) 638400 Treasury stock [(22000 x $25) + (2000 x $28.50)] 607000 Paid-in capital, share repurchase 31400 (To record re-issue of treasury stock) 5 Cash (17000 x $22.50) 382500 Paid-in capital, share repurchase ($14000 + $31400) 45400 Retained Earnings (balance amount) 56600 Treasury stock (17000 x $28.50) 484500 (To record re-issue of treasury stock) 6 Stock dividend [(2578000 - 40000 + 24000 + 17000) x 30% x $23] 17795100 Common stock (773700 x $1) 773700 Paid-in capital in excess of par, common stock (773700 x $22) 17021400 (To record stock dividend declared) 7 Machinery [$500000 / $4500000 x (40000 x $108)] 480000 Factory Building [$1500000 / $4500000 x (40000 x $108) 1440000 Land ($2500000 / $4500000 x (40000 x $108) 2400000 Preferred stock (40000 x $100) 4000000 Paid-in capital in excess of par, preferred stock (40000 x $8) 320000 (To record preferred stock for asset purchase) 8 Income Summary 750000 Retained earnings 750000 (To record closing entry for net income)

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