Question

Problem 2 pripes Corporation sells window coverings. The following selected accounts appear in the lodger of Drapes Corporation on January 1, 2020, the first day of the fiscal year: Preferred 3% stock, cumulative, $5 par (1,500,000 shares authorized) Paid-in-capital in excess of par preferred stock 6,455,000 Common stock, 50.50 par (5,000,000 shares authorized) 462,500 Paid-in-capital in excess of par-common stock 6,937,500 Retained earnings 9,900,000 How many shares of preferred stock are issued on January 1? How many shares of common stock are issued on January 1? How many shares of common stock are outstanding on January 1? Justify your answer or $19.50 per share 000 shares of comcommon stock for $ During the year, the corporation completed a number of transactions affecting the stockholders' equity. They are summarized as follows: Feb. 3 Purchased 30,000 shares of treasury common stock for $19.50 per share. Mar. 3 Sold 8,000 shares of treasury common stock for $22 per share. Jun 12 Issued 32,000 shares of common stock at $20 share, receiving cash. The shares had never been issued before; they were not treasury shares Oct. 13 Sold 12,000 shares of treasury common stock for $19.40 per share. Oct. 27 Declared cash dividends totaling $175,000. This is the second year that the corporation is in business and no dividends were declared during the first year of operations Nov. 25 Paid dividends Dec 31 Closed the credit balance of the Income summary account, $800,000. Instructions: 1. Enter the January 1 balances of the Stockholders' Equity accounts into a General Ledger format (T accounts). 2. Journalize the entries to record the transactions and post to the appropriate T accounts. As becomes necessary, open additional stockholders' equity Taccounts (for accounts that did not have a balance on January 1, but subsequent transactions required their use). 3. Prepare the Statement of Statement of Stockholders' Equity for the year ended December 31, 2020 NOTE: Refer to the Statement of Stockholders' Equity illustration posted on D2L under the CH13 module. Be sure to divide the dividends declared into preferred and common, as the facts of the problem require. 4. Prepare the Stockholders' Equity section of the December 31, 2020 Balance Sheet. NOTE: Attach any additional pages that you created while completing steps 1-4. They can be prepared handwritten or electronically. How many shares of common stock are issued on December 31, 2020? How many shares of common stock are outstanding on December 31, 2020?

Answer 1

1) shares of preferred stock issued.
	$
Par value ofeach preferred stock	5
total preferred stock (par value)	2500000
no. of shares issued = total value of preferred stock issued (par value)/par value per shares
no. of shares preferred stock= 2,500,000/5=	500,000

Note: authorized shares are the total no. of shares that company is authorized to issue as and when equity funds are needed and it is not necessary that company has issued all the authorized shares.

2)	$
Par value ofeach common stock	0.5
total common stock (par value)	462,500
no. of shares issued = total value of common stock issued (par value)/par value per shares
no. of shares commonstock=462500/0.5	925,000

3) Outstanding shares represents total no. of shares issued by a company minus any stock that company has purchased back (also referred to as treasury stock)

	$
no. of common shares currently issued to investors	925000
Treasury stock	0
outstanding shares of common stock= no. of shares currently issued to investors-treasury stock(925000-0)	925000

Preferred Stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		$25,00,000
				Bal $25,00,000

Paid-in-capital -preferred stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		6,455,000
				Bal $6455000

Common Stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		462,500
				Bal $462,500

Paid-in-capital -common stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		6,937,500
				Bal $6937500

Retained Earnings
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		9,900,000
				Bal $9,900,000

Date	Particulars	Dr.	Cr.
3-Feb-20	Treasury Stock - common stock(19.5*30000)	585,000
	Cash		585,000
	(common stock purchased at $19.50, 30,000shares)
3-Mar-20	Cash (8000*22)	176000
	Treasury stock (8000*19.5)		156000
	Paid-in-Capital- Treasury Stock(8000*(22-19.5))		20000
	(8,000 shares of Treasury stock sold at $22 per share)
12-Jun-20	Cash(32000*20)	640000
	Common stock(32000*0.50)		16000
	paid-in-capital- common stock(32000*(20-0.5))		624000
	(common stock issued at $20 per share, 32000 shares)
13-Oct-20	Cash (12000*19.4)	232800
	Paid-in-Capital- Treasury Stock(12000*(19.5-19.4))	1200
	Treasury Stock(12000*19.5)		234000
	(Treasury stock reissued at $19.4 , less than purchase price of $19.5)
27-Oct-20	Retained earnings	175000
	Dividend payable		175000
	(dividends declared and not paid)
25-Nov-20	Dividend payable	175000
	Cash		175000
	(Dividends that were declared are now paid)
31-Dec-20	Income summary	800000
	Retained earnings		800000
	(closed balance that is transferred the profit from Income summary to Retained earnings)

Retained Earnings
Debit	Credit
Date		Amt	Date		Amt
27/10/2020	175000	1/1/2020		9,900,000
			31/12/2020	800,000
				Bal $10,525,000

Treasury Stock
Debit	Credit
Date		Amt	Date		Amt
3/2/2020		585,000	3/3/2020		156,000
			13/10/2020	234,000
		Bal$195000

Treasury Stock- paid in capital
Debit	Credit
Date		Amt	Date		Amt
13/10/2020	1,200	3/3/2020		20,000
			Bal$18,800

Common Stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		462,500
			12/6/2020		16,000
			Bal$478,500

Paid-in-capital -common stock
Debit	Credit
Date		Amt	Date		Amt
			1/1/2020		6,937,500
			12/6/2020		624,000
			Bal$7561500