Question

Problem 21.4A Recording cash dividends, stock splits, appropriations of retained earnings, and donated assets; preparing the Stockholders Equity section of the balance sheet. LO 21-5, 21-7, 21-8, 21-9, 21-11 20 points The Stockholders' Equity section of the balance sheet of Willy Corporation on January 1, 2019, is shown below, selected transactions for the year follow: $89,000 8,900 $ 97,900 Stockholders' Equity Preferred Stock (10% cumulative, $10 par value, 200,00 shares authorized) Issued and Outstanding, 8,900 Shares Paid-in Capital in Excess of Par Value Common Stock (no par value, $50 stated value, 290,000 shares authorized) Issued and Outstanding. 2,900 Shares Pald-in Capital in Excess of Stated Value Total Pald.in Capital Retained tarnings Total Stockholders' Equity 145,000 S. 100 150.000 $248,700 139,000 $387,700 DATE Feb. TRANSACTIONS 15 Repurchased 4,450 shares of the outstanding preferred stock for $48,950 in cash. The stock is to be held as treasury stock. State law requires that an amount of retained earnings equal to the cost of treasury stock held must be appropriated. Record the purchase and the appropriation of retained earnings. 4 Declared a 2-for-1 stock split of common stock. Each shareholder will own twice as many shares as originally owned. Stated value is reduced to $25 per share. Date of record is March 15. Date of issue of new shares is April

Answer 1

Solution:

Date Credit General Journal Feb-15 Treasury Preferred Stock Cash Debit $ 48,950 $ 48,950 $ 48,950 Feb-15 Retained Earnings Retained earnings appropriated for treasury stock $ 48,950 Mar-04 No Entry Apr-01 No entry $2,225 Jun-17 Retained Earnings (4,450 sh * $10) * 5% Dividend Payable on Preferred stock (No. of Outstanding Share * par value) * Rate of Dividend $ 2,225 $2,225 Jul-12 Dividend Payable on Preferred stock Cash $ 2,225 $5,000 Sep-25 Treasury Preferred Stock Cash $5,000 $5,000 Sep-25 Retained Earnings Retained earnings appropriated for treasury stock $5,000 $ 1,975 Dec-15 Retained Earnings (3,950 sh * $10) * 5% Dividend Payable on Preferred stock $ 1,975 $ 7,540 Dec-15 Retained Earnings (5,800 shares * $1.30) Dividend Payable on Common stock $ 7,540 $ 159,000 Dec-15 Land Donated Capital $ 159,000 $ 79,000 Dec-31 Income Summary Retained Earnings $ 79,000

Note: Mome entry for split stock A 2-for-1 stock split increased the number of shares of common stock outstanding from 2,900 to 5,800 and reduced the par value from $50 to $25 per share.

Shareholder's Equity Section of the Balance Sheet Shareholder's Equity Preferred stock (10% cumulative, $10 par, 200,000 sh. authorised) 8,900 shares issued and 3,950 shares outstanding $ 89,000 Paid-in-Capital in excess of par $ 8,900 $ 97,900 Common Stock (no par value, $25 Stated value, 290,000 shares Authorised) Issued and outstanding, 5,800 shares Paid-in-Capital in excess of stated value $ 145,000 $ 5,800 $ 150,800 $ 248,700 Retained Earnings Approriated for treasury Stock Unappropriated $ 152,310 $ 53,950 $ 206,260 $ 454,960 $ 53,950 $ 401,010 Less: Treasury preferred stock at Cost ($48,950 + $5,000) Statement of changes in Retained Earnings (Unappropriated) Balance as on 1- January 2019 Less: Amount Transferred to Appropriated to treasury stock Less: Dividend Paid/ Payable on Preferred Stock Less: Dividend Payable on Common stock Add: Net Income during the year Balance of Unappropriated Retained Earnings Amount $ 139,000 $ 53,950 $ 4,200 $ 7,540 $ 79,000 $ 152,310