Question

Skysong Company reported the following amounts in the stockholders' equity section of its December 31, 2019, balance sheet. Preferred stock, 9%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000 Common stock, $5 par (101,500 shares authorized, 20,300 shares issued) 101,500 Additional paid-in capital 130,000 Retained earnings 486,000 $897,500 Total During 2020, Skysong took part in the following transactions concerning stockholders' equity. Paid the annual 2019 $9 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2019. 1. Purchased 1,800 shares of its own outstanding common stock for $41 per share. Skysong uses the cost method. 2. Reissued 700 treasury shares for land valued at $31,400. 3. Issued 510 shares of preferred stock at $104 per share. 4. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual 2020 $9 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2021.

Answer 1

The journal entries are prepared as below:

No.	Description	Debit	Credit
1	Dividends Payable-Preferred (1,800*9)	$16,200
	Dividends Payable-Common (20,300*2)	$40,600
	Cash		$56,800
2	Treasury Stock (1,800*41)	$73,800
	Cash		$73,800
3	Land	$31,400
	Treasury Stock (700*41)		$28,700
	Paid-in Capital From Treasury Stock (31,400-28,700)		$2,700
4	Cash (510*104)	$53,040
	Preferred Stock (510*100)		$51,000
	Paid in Capital in Excess of Par-Preferred Stock [510*(104-100)]		$2,040
5	Retained Earnings [19,200*10%*45]	$86,400
	Common Stock Dividend Distributable [19,200*10%*5]		$9,600
	Paid in Capital in Excess of Par-Common Stock (86,400-9,600)		$76,800
6	Common Stock Dividend Distributable	$9,600
	Common Stock		$9,600
7	Retained Earnings [20,790+42,240]	$63,030
	Dividends Payable-Preferred [(1,800+510)*9]		$20,790
	Dividends Payable-Common [(19,200+1,920)*2]		$42,240

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Notes:

1) The value of 19,200 outstanding shares for transaction 5 is arrived as below:

Total Common Stock Outstanding for Transaction 5 = 20,300 (Common Stock at the Start of Year) - 1,800 (Purchase of Treasury Stock during the Year) + 700 (Reissue of Treasury Stock during the Year) = 19,200 shares