Question

Problems - Respond to 2 of the following 3 problems (175 points each) 1. Chase Corporation has the following capital structure at the beginning of 2019 5% Preferred stock, $50 par value, 50.000 shares authorized; 10,000 shares issued and outstanding Common stock, $5 par value, 100,000 shares authorized: 50.000 shares issued and outstanding Paid-in capital in excess of par $500,000 250,000 340,000 Total paid-in capital Retained earnings Total stockholders' equity 1.090.000 460,000 $1,550,000 Required: a. Prepare journal entries for the following transactions which occurred consecutively throughout 2019. i. A total cash dividend of $50,000 was declared to stockholders of record. ii. Bought 3,000 shares of treasury stock at $20 per share. iii. Resold 1,000 treasury shares at $22 per share. iv. Resold 750 shares of treasury stock at $17 per share. b. Prepare the stockholders' equity section of the balance sheet at December 2019. Assume that net income for the year was $170,000.

Answer 1

Answer to Question a:

Credit Question a Date Account Name Cash Dividends Dividends Payable (To record issue of dividend) Debit $ 50,000 $ 50,000 Treasury Stock (3,000 X $20) $ 60,000 Cash $ 60,000 (To record purchase of own stock - 3,000 shares for $20 each) Cash (1,000 X $22) $ 22,000 Paid in Capital from Sale of Treasury Stock $ 2,000 Treasury Stock (1,000 X $20) $ 20,000 (To record sale of treasury stock 1,000 shares at $22 each, which was acquired at $20) Calculation of Paid in Capital from Sale of Treasury Stock amount: Paid in Capital from Sale of Treasury Stock = (Sale price - Purchase price) X Number of treasury shares sold Paid in Capital from Sale of Treasury Stock = ($22 - $20) X 1,000 Paid in Capital from Sale of Treasury Stock = $2,000

Answer to Question a:

Question a Date Account Name Debit Credit Cash iv. (750 X $17) $ 12,750 Paid in Capital from Sale of Treasury Stock $ 2,000 Retained Earnings $ 250 Treasury Stock (750 X $20) $ 15,000 (To record sale of treasury stock 750 shares at $17 each) 5 The loss we made selling treasury stock below the cost we bought it at will be adjusted 5 against the paid in capital from treasury stock to the extent it is available. - Since paid in capital from treasury stock can be adjusted to the extent of $2,000, the 3 remaining shall be adjusted against Retained earnings. UUTO

Answer to Question b:

Question b Chase Corporation Shareholders Equity Section of the Balance Sheet December 31, 2019 Paid in Capital: 5% Preferred Stock, $50 par value, 50,000 shares authorized, 10,000 shares issued and outstanding $ 500,000 Common Stock, $5 par value, 100,000 shares authorized, 50,000 shares issued $ 250,000 Paid in Capital in excess of par $ 340,000 Total Paid in Capital $ 1,090,000 (500,000 + 250,000 + 340,000) Retained Earnings $ 629,750 Subtotal $ 1,719,750 Less: Treasury Stock, (1,250 common shares) $ 25,000 Total Stockholders Equity $ 1,694,750 |(1,719,750 - 25,000) Calculation for treasury stock: Number of own shares purchased = 3,000 Less: Number of shares own shares sold = 1,750 Treasury shares = 3,000 - 1,750 = 1,250 Value = 1,250 x $20 = $25,000 Computation of Retained Earnings Balance = Opening Balance + Net Income - Loss on Sale of Treasury Stock Computation of Retained Earnings Balance = 460,000+ 170,000 - 250 Computation of Retained Earnings Balance = $629,750