Question

Common Stock Issuance, Treasury Stock, Dividends, Disclosure. Sanmartini Van Lines, Ltd. began opera- tions at the beginning of the current year and engaged in the following transactions affecting the stockholders equity section of its current balance sheet. The company has 1,000,000 shares authorized for each common and preferred stock. 1. Issued 500,000 shares of its $2 par value common stock at $64 per share. The underwriter charged a 1% fee for issuing the shares. 2. Issued 100,000 shares of $4.50 par value, 7% preferred stock at $120 per share. These shares were pri- vately placed and Sanmartini did not pay any stock issue costs. 3. Purchased 120,000 shares of common stock at $70 per share. 4. Declared a $75,000 dividend for the first half of the year. (The declarations should be recorded separately for the common and the preferred shares.) 5. Sold 45,000 of the treasury shares at $60 per share.

Answer 1

No	General journal	Debit	Credit
1)	Cash ((500,000*$64 )- (500,000*$ 64%* 1%))	$ 31,680,000
	Common stock ( 500,000 shares * $ 2 )		$ 1,000,000
	Additional paid in capital in excess of par -common stock		$ 30,680,000
	($31,680,000 - $ 1,000,000 )
	(To record issues of common stock @ 64 per share )
2)	Cash (100,000 shares * $ 120 per share )	$ 12,000,000
	Preferred stock at par (100,000 shares * $ 4.50 per share )		$ 450,000
	Additional paid in capital in excess of par -Preferred stock		$ 11,550,000
	($ 12,000,000 -$ 450,000)
	(To record issues of preferred stock @ 120 per share )
3)	Treasury stock (120,000 shares * $ 70 per share )	$ 8,400,000
	Cash		$ 8,400,000
	(To record purchase of common stock @ 70 per share )
4)a)	Dividends -Preferred stock (100,000 shares *$4.50* 7%* 6/12 months)	$ 15,750
	Dividends payable- preferred stock		$ 15,750
	(To record preferred dividend declared for first half of year)
4)b)	Dividends -Common stock ($75,000 -$ 15,750)	$ 59,250
	Dividends payable- Common stock		$ 59,250
	(To record Common dividend declared )
5)	Cash (45000 shares * $ 60 per share )	$ 2,700,000
	Retained earnings ($3,150,000 -$ 2,700,000)	$ 450,000
	Treasury stock ( 45,0000 shares * $ 70 per share )		$ 3,150,000
	( To record treasury stock sold @ 60 per share )
6)	Dividends payable- preferred stock	$ 15,750
	Dividends payable- Common stock	$ 59,250
	Cash		$ 75,000
	( To record cash Dividends paid )
7)a)	Dividends -Preferred stock (100,000 shares *$4.50* 7%* 6/12 months)	$ 15,750
	Dividends payable- preferred stock		$ 15,750
	(To record preferred dividend declared for second half of year)
7)b)	Dividends -Common stock ($75,000 -$ 15,750)	$ 59,250
	Dividends payable- Common stock		$ 59,250
	(To record Common dividend declared )
8)	Income summary	$ 9,879,455
	Retained earnings		$ 9,879,455
	(To record net income transferred to Retained earnings )
9)	Retained earnings ($ 31,500 +$ 118,500 )	$ 150,000
	Dividends-preferred stock ($ 15,750+$15,750)		$ 31,500
	Dividends-common stock ($59,250+$59,250)		$ 118,500
	(To record closed out all dividends accounts)