Question

Stockholders' Equity: Transactions and Balance Sheet Presentation The stockholders' equity of Summit Corporation at January 1 follows: 7 Percent preferred stock, $100 par value, 20,000 shares authorized: 5,000 shares issued and outstanding $500,000 Common stock, $15 par value, 100,000 shares authorized; 40,000 shares issued and outstanding 600,000 Paid-in capital in excess of par value-Preferred stock 24,000 Paid-in capital in excess of par value-Common stock 360,000 Retained earnings 325,000 Total Stockholders' Equity $1,809,000 The following transactions, among others, occurred during the year: Jan. 12 Announced a 3-for-1 common stock split, reducing the par value of the common stock to $5 per share. The authorization was increased to 300,000 shares. Mar. 31 Converted $40,000 face value of convertible bonds payable (the book value of the bonds was $43,000) to common stock. Each $1,000 bond converted to 130 shares of common stock. June 1 Acquired equipment with a fair market value of $70,000 in exchange for 500 shares of preferred stock. Sept. 1 Acquired 10,000 shares of common stock for cash at $13 per share Oct. 12 Sold 1,500 treasury shares at $15 per share. Nov. 21 Issued 5,000 shares of common stock at $14 per share. Dec. 28 Sold 1,200 treasury shares at $11 per share. 31 Closed net income of $91,000 to the Retained Earnings account. Required • Prepare journal entries for the given transactions and post them to the T-accounts. Do not prepare the journal entry for the Dec. 31 transaction, but post the appropriate amount to the Retained Earnings T-account. Determine the ending balances for the stockholders' equity accounts. • Prepare the stockholders' equity section of the balance sheet at December 31.

Answer 1

Date	Particulars	Debit	Credit
12 -Jan	Common Stock ($ 15 each) account- Dr                  To Common Stock ($ 5 each) (Being 3 for 1 spilt for common Stock done)	$ 6,00,000.00	$ 6,00,000.00
31 March	Convertible Bonds Payable account -Dr                   To Common Stock Account                   To Retained Earnings Account (Being 5590 shares of Common stock given in Exchange of Convertible Bonds)	$ 43,000.00	$ 27,950.00 $15,050.00
1st June	Equipment account      -Dr                 To Preferred Stock (Being 500 Preferred shares given for acquired a new Equipment)	$ 50,000.00	$ 50,000.00
1st Sept	Common Stock (Investment) Account – Dr                  To Cash (Being 10000 shares of common Stock purchased)	$ 13,000.00	$13,000.00
12th October	Cash Account -   Dr                To Treasury Shares account (Bring treasury shares [1500] for $ 15 each)	$ 22,500.00	$ 22,500.00
21st Nov	Cash Account -Dr                To Common Stock account                To Paid in excess of par value- common stock account (Being 5000 shares issued @ $ 14 each)	$ 70,000.00	$ 25,000.00 $ 45,000.00
28th December	Cash Account -   Dr                To Treasury Shares account (Bring treasury shares [1200] for $ 11 each)	$ 13,200.00	$ 13,200.00

T Accounts
Common Stock Account ( $ 15 each)
Particulars	Amount	Particulars	Amount
To Common stock ( $5 each)	$     600,000.00	By bal b/d	$ 600,000.00
	$     600,000.00		$ 600,000.00
Common Stock Account ( $ 5 each)
Particulars	Amount	Particulars	Amount
		By Cash	$   25,000.00
To Bal c/d	$     625,000.00	By Common stock ( $ 15 each)	$ 600,000.00
	$     625,000.00		$ 625,000.00
Convertible bonds Account
Particulars	Amount	Particulars	Amount
To common Stock	$       27,950.00	By bal c/d	$   43,000.00
To retained earnings	$       15,050.00
	$       43,000.00		$   43,000.00
Prefered Stock Account
Particulars	Amount	Particulars	Amount
To Bal c/d	$     550,000.00	By bal c/d	$ 500,000.00
		By Equipment	$   50,000.00
	$     550,000.00		$ 550,000.00
Equipment account
Particulars	Amount	Particulars	Amount
To Prefered Stock	$       50,000.00	By bal c/d	$   50,000.00
	$       50,000.00		$   50,000.00
Common Stock (Investment ) Account
Particulars	Amount	Particulars	Amount
To Cash	$       13,000.00	By bal c/d	$   13,000.00
	$       13,000.00		$   13,000.00
Treasury Shares account
Particulars	Amount	Particulars	Amount
To bal c/d		By cash	$   22,500.00
		By cash	$   13,200.00
	$                      -		$   35,700.00
Paid in excess of Par value- Common stock account
Particulars	Amount	Particulars	Amount
		By bal c/d	$ 360,000.00
To bal c/d	$     405,000.00	By cash	$   45,000.00
	$     405,000.00		$ 405,000.00
Retained Earning Account
Particulars	Amount	Particulars	Amount
To bal c/d	$     431,050.00	By Bal b/d	$ 325,000.00
		By convertible bonds	$   15,050.00
		By Net income	$   91,000.00
	$     431,050.00		$ 431,050.00
Stockholder's Equity
Paid-in Capital
Preferred Stock	$     625,000.00
Common Stock	$     550,000.00
Paid in excess of Par Value- Common Stock	$     405,000.00
Paid in excess of Par Value- Preferred stock	$       24,000.00
Retained Earnings	$     431,050.00
Total Stockholder's Equity	$ 2,035,050.00