Problem 1 Sweet Sixteen has two classes of stock authorized: $100 par preferred
ID: 2718507 • Letter: P
Question
Problem 1
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.
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
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,so 1000*100 and 20000*1 cash inflow Account name Debit Credit Cash 1,20,000.00 Common stock 20000 Prefered stock 100000 March 1 Issue 3,000 additional shares of common stock for $22 per share. so 3000*22 cash inflow Account name Debit Credit Cash 66,000.00 Common stock 66000 April 1 Issue 5,000 additional shares of preferred stock for $110 per share. so 5000*110 cash inflow Account name Debit Credit Cash 5,50,000.00 Prefered stock 5,50,000.00 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. No entries on declarations June 30 Pay the cash dividends declared on June 1.(23000*1) + (5*6000) Account name Debit Credit Cash 53000 Divedend account 53000 August 1 Repurchase 2,000 shares of common treasury stock for $18 per share.i.e.2000*18 Account name Debit Credit Cash 36000 Treasury stock 36000 October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.i.e.1000*20 Account name Debit Credit Cash 20,000.00 Treasury stock 20,000.00 Transaction Total Assets Total Liabilities Stockholders’ equity Issue common stock + + Issue preferred stock + + Declare cash dividends NE NE Pay cash dividends - - Repurchase treasury stock - - Reissue treasury stock + + Stockholder equity section 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. Jan-12 Dec-12 Shareholders equity Prefered stock 100000 7,50,000.00 Common sock 20000 90,000.00 Retained earnings 450000 515000 Paid in capital 380000 380000 Total shareholders equity 950000 17,35,000.00 repurchase has been taken care of in calculation Statement of shareholders equity Common stock Paid in capital Retained earnings Prefered stock Treasury stock Total equityholders equity Balance on 1st Jan 20000 380000 450000 100000 950000 Issue share for cash 86000 6,50,000.00 736000 Purchase of treasury stock -16,000.00 -16000 Net income 65000 65000 Cash divedend -53000 -53000 Balance on dec 12 106000 380000 462000 750000 -16000 1682000 Statement of shareholders equity is very detailed than the stockholder section of balancesheet and is easy to recognise each and every transaction
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