Question

Problem 11-02A The stockholders' equity accounts of Indigo Corporation on January 1, 2022, were as follows Preferred Stock (7%, $100 par noncumulative, 10,000 shares authorized) Common Stock ($4 stated value, 600,000 shares authorized) Paid-in Capital in Excess of Par Value-Preferred Stock Paid-in Capital in Excess of Stated Value-Common Stock Retained Earnings Treasury Stock (10,000 common shares) $600,000 2,000,000 30,000 960,000 1,376,000 80,000 During 2022, the corporation had the following transactions and events pertaining to its stockholders' equity. Feb. 1 Issued 10,000 shares of common stock for $60,000. Mar. 20 Purchased 2,000 additional shares of common treasury stock at $7 per share. Oct. 1 Declared a 7% cash dividend on preferred stock, payable November 1. Nov. 1 Paid the dividend declared on October 1. Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2022. Dec. 31 Determined that net income for the year was $560,000. Paid the dividend declared on December 1.

Answer 1

Journal entries:

Date	Account title and explanation	Debit	Credit
Feb.1	Cash	$60,000
	Common stock [10,000 x $4]		$40,000
	Paid-in capital in excess of stated value- common stock		$20,000
	[Issuance of common stock]
Mar.20	Treasury stock   [2,000 x $7]	$14,000
	Cash		$14,000
	[Repurchase of own shares]
Oct.1	Dividends   [600,000 x 7%]	$42,000
	Dividends payable-preferred		$42,000
	[Declaration of cash dividends]
Nov.1	Dividends payable-preferred	$42,000
	Cash		$42,000
	[Payment of cash dividends]
Dec.1	Dividends [498,000* x $0.50]	$249,000
	Dividends payable-common		$249,000
	[Declaration of cash dividends]
Dec.31	Income summary	$560,000
	Retained earnings		$560,000
	[To record net income]
Dec.31	Retained earnings	$291,000
	Dividends [42,000 + 249,000]		$291,000
	[To close cash dividends]
Dec.31	Dividends payable-common	$249,000
	Cash		$249,000
	[To record payment of cash dividends payable]

*Outstanding Common shares
Beginning ($2,000,000/$4)	500,000
New issue	10,000
Treasury stock:
Beginning	-10,000
Mar.20	-2,000
Balance	498,000

T-Accounts:

Preferred stock
		Beg.	$600,000
		End.	$600,000
Common stock
		Beg.	$2,000,000
		Feb.1	$40,000
		End.	$2,040,000
Paid-in capial in excess of par value-Preferred stock
		Beg.	$30,000
		End.	$30,000
Paid-in capital in excess of stated value-common stock
		Beg.	$960,000
		Feb.1	$20,000
		End.	$980,000
Retained earnings
Dec.31	$291,000	Beg.	$1,376,000
		Dec.31	$560,000
		End.	$1,645,000
Cash dividends
Oct.1	$42,000
Dec.1	$249,000
End.	$291,000
Treasury stock
Beg.	$80,000
Mar.20	$14,000
End.	$94,000

Stockholder's equity:

INDIGO CORPORATION
Partial Balance Sheet
December 31,2022
Stockholder's equity:
Paid-in capital
Capital stock
Preferred stock	$600,000
Common stock	$2,040,000
Total capital stock		$2,640,000
Additional paid-in capital
In excess of par value-preferred stock	$30,000
In excess of stated value-common stock	$980,000
Total additional paid-in capital		$1,010,000
Total Paid-in capital		$3,650,000
Retained earnings		$1,645,000
Total paid-in capital and retained earnings		$5,295,000
(less): Treasury stock		($94,000)
Total stockholder's equity		$5,201,000