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Q9E.

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Intermediate Accounting (Kieso)
Found in: Page 813

Short Answer

(Preferred Stock Entries and Dividends) Otis Thorpe Corporation has 10,000 shares of $100 par value, 8%, preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, balance sheet? How should these dividends be reported?
  2. If the preferred stock is convertible into seven shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?
  3. If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders’ equity section?

Total Paid-in Capital from Treasury stock is $1,000.

See the step by step solution

Step by Step Solution

Meaning of Preferred Stock

Preferred stock is the only stock that gives shareholders different rights than common stock. A shareholder holding preferred stock gets dividends regularly and is paid first in the case of insolvency or amalgamation.

Recording Journal Entries

S.no.

Particular

Debit $

Credit $

May 2

Cash

192,000

Common Stock

60,000

Paid-in Capital in Excess of Par

Common stock

132,000

To record the issue of share.

May 10

Cash

600,000

Preferred Stock

300,000

Paid-in Capital in Excess of Par

Preferred Stock

300,000

To record the issue of shares.

May 15

Treasury Stock

15,000

Cash

15,000

To record the issue of shares.

May 31

Cash

8,500

Treasury Stock

7,500

Paid-in Capital from Treasury Stock

1,000

To record the transfer of treasury stock.

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