Question

Vaughn Company reported the following amounts in the stockholders' equity section of its December 31, 2019, balance sheet. Preferred stock, 11%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000 Common stock, $5 par (92,500 shares authorized, 18,500 shares issued) 92,500 Additional paid-in capital 120,000 Retained earnings 413,000 Total $825,500 During 2020, Vaughn took part in the following transactions concerning stockholders' equity. 1. Paid the annual 2019 $11 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2019. 2. Purchased 1,900 shares of its own outstanding common stock for $40 per share. Vaughn uses the cost method. 3. Reissued 600 treasury shares for land valued at $32,100. 4. Issued 530 shares of preferred stock at $105 per share. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $47 per share. 6. Issued the stock dividend. 7. Declared the annual 2020 $11 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2021.

Answer 1

Answer :-

No.	Account and Explanation	Debit	Credit
1	Divdend Payable - common stock a/c Dr (18,500 shares issued × $2 per share Dividend on Preferred stock)	$37,000
	Dividend Payable - preferred stock a/c Dr (2,000 shares × $11 per share Dividend on Preferred stock)	$22,000
	To Cash a/c		$59,000
2	Treasury Stock a/c Dr ( 1,900 shares × $40 per shares)	$76,000
	To Cash a/c		$76,000
3	Land a/c Dr	$32,100
	To Treasury Stock a/c (600 shares × 40 per share)		$24,000
	To Additional paid-in capital-Common stock a/c		$8,100
4	Cash a/c Dr (issue 530 share @ 105 per share)	$55,650
	To Preferred stock  a/c (530 share × $100 par value)		$53,000
	To Additional paid-in capital-Preferred stock  a/c		$2,650
5	Retained Earnings a/c Dr (Note - 1)	$80,840
	To Stock Dividend Payable a/c (1,7200 share × 5 par value × 10%)		$8,600
	To Additional paid-in capital-Common stock a/c		$72,240
6	Stock Dividend Payable a/c Dr	$8600
	To Common Stock  a/c		$8600
7	Retained Earnings a/c Dr	$65,670
	To Dividend Payable - Common Stock a/c (17,200 + 1720share ) × $2		$37,840
	To Dividend Payable - Preferred Stock a/c ( 2,530 share × $11 per share)		$27,830

Note :- 1

Total outstanding common stock ( 18,500 share issued - 1900 shares purchased + 600 share reissued) = 17,200 shares.

Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $47 per share

Retained earnings = 17,200 share × 10% × 47 = $ 80,840

.

VAUGHN COMPANY Stockholders' Equity December 31,2020
Capital stock :
Common stock ($92,500 + $8,600)	$101,100
Preferred stock ($200,000 + $53,000)	$253,000
Total Capital stock	$354,100
Additional Paid in Capital($120,000 + $8,100 + $2,650 + $72,240)	$202,990
Total Paid in Capital	$557,090
Retained earnings ($413,000 - $80840 - $65,670)	$266,490
Total Paid in Capital and Retained earnings	$823,580
Less :- Treasury stock ( $76,000 - $24000)	$52,000
Total Stock holders' Equity	$771,560