Major League Apparel has two classes of stock authorized: 5%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2021, its first year of operations:
January | 2 | Issue 100,000 shares of common stock for $69 per share. | ||
February | 14 | Issue 59,000 shares of preferred stock for $11 per share. | ||
May | 8 | Purchase 10,000 shares of its own common stock for $59 per share. | ||
May | 31 | Resell 5,000 shares of treasury stock for $64 per share. | ||
December | 1 | Declare a cash dividend on its common stock of $0.30 per share and a $29,500 (5% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.) | ||
December | 30 | Pay the cash dividends declared on December 1. |
2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $489,000. (Amounts to be deducted should be indicated by a minus sign.)
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Major League Apparel |
Workings | ||
Common Stock | Number | Note |
Shares Issued on 2nd Jan | 100,000.00 | A |
Sale price | 69.00 | B |
Par Value per share | 1.00 | C |
Paid in capital in excess of par- Common Stock | 68.00 | D=B-C |
Sale value | 6,900,000.00 | E=B*A |
Par Value | 100,000.00 | F=C*A |
Paid in capital in excess of par- Common Stock | 6,800,000.00 | G=D*A |
Common Stock- Dividend | ||
Shares Issued on 2nd Jan | 100,000.00 | See A |
Less: Reacquired on May 8 | 10,000.00 | |
Add: Sold reacquired shares on May 31 | 5,000.00 | |
Number of shares on which dividend paid | 95,000.00 | H |
Dividend per share | 1.00 | I |
Common Stock- Dividend | 95,000.00 | J=H*I |
Treasury Stock | Number | |
Number of shares reacquired on May 8 | 10,000.00 | K |
Price paid per share | 59.00 | L |
Total amount paid | 590,000.00 | M=K*L |
Less: Reissued shares on May 31 | 5,000.00 | N |
Number of shares as Treasury Stock as on Dec 31 | 5,000.00 | O=K-N |
Price paid per share | 59.00 | See L |
Value of Treasury Stock as on Dec 31 | 295,000.00 | P=O*L |
Paid in capital in excess of par- Common Stock | ||
From issue of shares on 2nd Jan | 6,800,000.00 | See G |
Reissued 5,000 shares @ $ 64 on May 31 | 320,000.00 | Q |
Less: Price paid for 5,000 shares @ $ 59 on May 8 | 295,000.00 | R |
Paid in capital in excess of par- Common Stock | 25,000.00 | S=Q-R |
Closing Paid in capital in excess of par- Common Stock | 6,825,000.00 | O=G+S |
Preferred Stock | Number | Note |
Shares Issued on Feb 2 | 59,000.00 | T |
Sale price | 11.00 | U |
Par Value per share | 10.00 | V |
Paid in capital in excess of par- Preferred Stock | 1.00 | W=U-V |
Sale value | 649,000.00 | X=T*U |
Par Value | 590,000.00 | Y=T*V |
Paid in capital in excess of par- Preferred Stock | 59,000.00 | Z=T*W |
Retained Earnings | ||
Income Summary | 489,000.00 | |
Less: | ||
Preferred Stock- Dividend | 29,500.00 | |
Common Stock- Dividend | 95,000.00 | |
Closing Retained Earnings | 364,500.00 | AA |
Journal Entry | ||||
Date | Account | Debit $ | Credit $ | Note |
2-Jan | Cash | 6,900,000.00 | See E | |
Common Stock | 100,000.00 | See F | ||
Paid in capital in excess of par- Common Stock | 6,800,000.00 | See G | ||
14-Feb | Cash | 649,000.00 | See T | |
Preferred Stock | 590,000.00 | See U | ||
Paid in capital in excess of par- Preferred Stock | 59,000.00 | See V | ||
8-May | Treasury Stock | 590,000.00 | ||
Cash | 590,000.00 | See M | ||
31-May | Cash | 320,000.00 | See Q | |
Treasury Stock | 295,000.00 | See R | ||
Paid in capital in excess of par- Common Stock | 25,000.00 | See S | ||
1-Dec | Retained Earnings | 124,500.00 | ||
Preferred Stock- Dividend Payable | 29,500.00 | Given in the sum | ||
Common Stock- Dividend Payable | 95,000.00 | See J | ||
31-Dec | Preferred Stock- Dividend Payable | 29,500.00 | Given in the sum | |
Common Stock- Dividend Payable | 95,000.00 | See J | ||
Cash | 124,500.00 | |||
31-Dec | Income Summary | 489,000.00 | Given in the sum | |
Retained Earnings | 489,000.00 |
Stockholder's Equity | ||
Paid-In Capital: | Amount $ | Note |
Preferred Stock (5%, $ 10 par, | ||
59,000 shares issued and outstanding) | 590,000.00 | See Y |
Common Stock ($ 1 par, | ||
100,000 shares issued and outstanding) | 100,000.00 | See F |
Paid in capital in excess of par- Preferred Stock | 59,000.00 | See Z |
Paid-In Capital in Excess of Par-Common Stock | 6,825,000.00 | See O |
Retained Earnings | 364,500.00 | See AA |
Treasury stock | ||
(5,000 shares at $ 59 par share) | (295,000.00) | See P |
Total Stockholder's Equity | 7,643,500.00 |
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