Question

Major League Apparel has two classes of stock authorized: 6%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2021, its first year of operations:

January		2		Issue 110,000 shares of common stock for $70 per share.
February		14		Issue 60,000 shares of preferred stock for $12 per share.
May		8		Purchase 11,000 shares of its own common stock for $60 per share.
May		31		Resell 5,500 shares of treasury stock for $65 per share.
December		1		Declare a cash dividend on its common stock of $0.25 per share and a $36,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.)
December		30		Pay the cash dividends declared on December 1.

1. Record the entry on December 30 (December 15, 2021)

2. Record the cash dividends declared on December 1. (December 30, 2021)

3.

Khaki Republic sells clothing and accessories through premium outlet locations and online. Selected financial data for Khaki Republic is provided as follows:

($ in millions except share data)
Sales	$	4,158
Net income	$	144
Stockholders’ equity, beginning	$	1,890
Stockholders’ equity, ending	$	1,931
Average shares outstanding (in millions)		85.6
Dividends per share	$	0.75
Stock price, ending	$	47.23

Calculate the following ratios for Khaki Republic.

Answer 1

1) Credit Date January 2, 2021 Debit $7,700,000 General Journal Cash (110,000 shares * $70) Common Stock (110,000 shares * $1) Additional paid in capital-common stock $110,000 $7,590,000 February 14, 2021 $720,000 Cash (60.000 shares * $12) Preferred Stock (60.000 shares * $10) Additional paid in capital-preferred stock $600,000 $120.000 May 8. 2021 $660.000 Treasury stock (11,000 shares * $60) Cash $660.000 May 8. 2021 $357,500 Cash (5,500 shares * $65) Treasury Stock (5.500 shares * $60) Additional paid in capital-Treasury stock $330.000 $27,500 December 1, 2021 $62,125 Dividends [(110.000 - 5,500) * $0.25 +$36.000) Dividends Payable $62,125 December 15, 2021 No Entry required December 30, 2021 Dividends Payable Cash $62,125 $62,125 2) Khakhi Republic (S in million) Return on Equity = Net Income / Average Shareholders equity = $144 / [($1.890+ $1,931)/2] = $144 / $1.910.5 = 7.54% Dividends Yield = Dividends per share / Stock Price = $0.75 / $47.23 = 1.59% Price-Earning Ratio = Stock price / Earning Per share = $47.23 / ($144 / 85.6) = $47.23 / $1.68 = 28.11