Question

The following information applies to the questions displayed below.) Nicole has been financing Nicole's Getaway Spa (NGS) using equity financing. Currently NGS has authorized 100,000 no-par preferred shares and 200,000 $2 par common shares. Outstanding shares Include 46,000 preferred shares and 36,000 common shares. Recently the following transactions have taken place. a. NGS Issues 800 preferred shares for $13 a share. b. NGS repurchases 800 common shares for $12 a share. c. On November 12, the board of directors declares a $0.50 cash dividend on each outstanding preferred share. d. The dividend is paid December 20. 1. value: 2.50 points 2.50 points Required: 1. Prepare the journal entries needed for each of the transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required in the first account field.) View transaction list 1 Record the issuance of 800 shares of preferred stock with no par value for a price of $13 per share. e for a 2 Record the purchase of 800 previously issued common shares for a price of $12 per share. 3 Record the declaration of a $0.50 cash dividend on the shares of preferred stock outstanding. Credit 4 Record the payment of the cash dividend to the preferred shareholders. Note : = journal entry has been entered Record entry Clear entry View general journal

Answer 1

Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. $ 10,400.00 Cash (800 x $13) Preferred Stock (To record issue of Preferred Stock for Cash) $ 10,400.00 h $ 9,600.00 Treasury Stock (800 x $12) Cash (To record Purchase of Treasury Stock) $ 9,600.00 23,400.00 Retained Earnings (46000+800)x$0.50 Dividend Payable - Preferred Stock (To record Cash dividends on preferred stock declared) $ 23,400.00 23,400.00 Dividend Payable - Preferred Stock Cash (To record payment of Cash Dividends) $ 23,400.00

Answer to Part 2: Preferred Stock does not carry any voting rights. Issue of Preferred Stock shall not impact voting rights of common stock holders. Definitely I prefer to issue additional preferred shares. So, Option 2 is Correct Answer.