Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q18E.

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 816

Short Answer

(Dividends and Stockholders’ Equity Section) Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued)

$200,000

Common stock, $5 par (100,000 shares authorized, 20,000 shares issued)

100,000

Additional paid-in capital

125,000

Retained earnings

450,000

Total

$875,000

During 2017, Cleves took part in the following transactions concerning stockholders’ equity.

  1. Paid the annual 2016 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2016.
  2. Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method.
  3. Reissued 700 treasury shares for land valued at $30,000.
  4. Issued 500 shares of preferred stock at $105 per share.
  5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
  6. Issued the stock dividend.
  7. Declared the annual 2017 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018.

Instructions

  1. Prepare journal entries to record the transactions described above.
  2. Prepare the December 31, 2017, stockholders’ equity section. Assume 2017 net income was $330,000.

Total Stockholders’ Equity section is $1,152,700, and the total debit and credit side of the journal is $371,800

See the step by step solution

Step by Step Solution

Meaning of Stockholders’ Equity

Shareholder's equity is the difference between a company's assets and liabilities, representing the remaining value if all assets were liquidated and outstanding obligations were settled.

Preparing Journal Entries

S.no.

Particular

Debit ($)

Credit ($)

(a) 1

Dividend Payable- Preferred

20,000

Dividend Payable-Common

40,000

Cash

60,000

To record the issue of dividend

Calculation of Dividend Payable-Preferred

Calculation of Dividend Payable-Common

S.no.

Particular

Debit ($)

Credit ($)

(a) 2

Treasury Stock

68,000

Cash

68,000

To record purchase of the share

Calculation of Total Amount of Cash

S.no.

Particular

Debit ($)

Credit ($)

(a) 3

Land

30,000

Treasury Stock

28,000

Paid-in Capital from Treasury stock

2,000

To record the reissued treasury stock

Calculation of Treasury Stock

S.no.

Particular

Debit ($)

Credit ($)

(a) 4

Cash

52,500

Preferred Stock

50,000

Paid-in Capital in Excess of Par-

Preferred Stock

2,500

To record the issue of preferred stock

Calculation of Preferred Share

S.no.

Particular

Debit ($)

Credit ($)

(a) 5

Retained Earnings

85,500

Common Stock Dividend Distributable

9,500

Paid-in Capital in Excess of Par-

Common Stock

76,000

To record the issue of preferred stock

Calculation of Retained Earnings:

S.no.

Particular

Debit $

Credit $

(a) 6

Common Stock Dividend Distributable

9,500

Common Stock

9,500

To record the issue of dividends.

(a) 7

Retained Earnings

66,800

Dividends Payable-Preferred

25,000

Dividends Payable -common

41,800

To record the declaration of dividend.

Calculation of Total amount of Dividend Payable-Common is given as follows:

Preparing Stockholders’ Equity section

ANNE CLEVES COMPANY

Stockholders’ Equity

December 31, 2014

Capital Stock

Preferred stock,10%, $100par,10,000 shares authorized,2500

shares issued and outstanding

$250,000

Common Stock, $5par,100,000 shares

Authorized 21,900 shares issued,20,900 shares outstanding

109,500

Total Capital Stock

359,500

Additional paid-in capital

205,500

Total paid-in capital

565,000

Retained Earnings

627,700

Total paid-in capital and retained earnings

Less: Cost of treasury stock (1,000 shares common)

1,192,700

40,000

Total stockholders’ Equity

$1,152,700

Working notes:

Computation of Preferred stock is given as follows:

Computation of Common Stock is given as follows:

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.