Question

I cannot figure out where I'm going wrong and of course, if the journal is wrong, the T-accounts are wrong. If you could provide explanations as to how the wrong answers in particular should be figured out, I'd greatly appreciate it.  

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 $42,000 face value of convertible bonds payable (the book value of the bonds was $46,000) to common stock. Each $1,000 bond converted to 125 shares of common stock.
June	1	Acquired equipment with a fair market value of $60,000 in exchange for 600 shares of preferred stock.
Sept.	1	Acquired 10,000 shares of common stock for cash at $16 per share.
Oct.	12	Sold 1,500 treasury shares at $18 per share.
Nov.	21	Issued 5,000 shares of common stock at $13 per share.
Dec.	28	Sold 1,200 treasury shares at $14 per share.
	31	Closed net income of $85,000 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.

Journal entries T-Accounts Stockholder's equity section Debit Credit $ $ 42,000 4,000 0 $ $ 0 0 28,750 X 17.250 x 60,000 0 60,000 160,000 0 160,000 General Journal Date Description Jan.12 (Memorandum) Common Stock split 3 for 1. Mar 31 Bonds Payable Premium on Bonds Payable Common Stock Paid-in-Capital in Excess of Par Value - Common Stock To record conversions of bonds. Jun.01 Equipment Preferred Stock Issued preferred stock in exchange for equipment Sept.01 Common Stock Cash Purchased treasury stock. Oct.12 Cash Treasury Stock - Common Paid-in-Capital from Treasury Stock Sold treasury stock. Nov.21 Cash Common Stock Paid-in-Capital in Excess of Par Value - Common Stock Issued common stock. Dec.28 Cash Paid-in-Capital from Treasury Stock Treasury Stock - Common To record sale of treasury stock. 27,000 22,500 x 4,500 x 65,000 25,000 40,000 0 16,800 6,000 x 0 0 10,800 x

Answer 1

In the books of Sumit Corporation Journal Entries Date Description Debit Credit Jan-12 Memorandum Entry On Jan-12 a 3-1 stock split has been declared for the common stock holders. The stock split will result in the number of shares issued and outstanding shares increasing from 40,000 to 120,000. 42,000 4,000 Mar-31 Bonds Payable Premium on bonds Payable Common Stock (42000*125*5/1000] Paid in Capital - in excess of par value of common stock (being every 1000 bond converted to 125 common stock of $5 each) $ $ 26,250 19,750 $ 60,000 Jun-01 Equipment Preferred Stock (600*100) (being equipment purchased in exchange of preferred stock) $ 60,000 1,60,000 Sep-01 Treasury Stock Cash (being 1000 treasury stock purchased for $ 16) $ 1,60,000 27,000 Oct-12 Cash Treasury stock (1500 @ $16) Paid in Capital from treasury Stock (1500@ $2) (being 1500 treasury stock sold at $ 18) $ $ 24,000 3,000 65,000 Nov-21 Cash (5000*13) Common Stock (5000*5) Paid in Capital - in excess of par value of Common stock (5000*8) (being 5000 shares issued at $ 13 per share) $ $ 25,000 40,000 16,800 2,400 $ Dec-28 Cash Paid in Capital from treasury Stock Treasury stock (being 1200 treasury stock sold at $ 14) $ 19,200 Amount 5,60,000 S Sumit Corporation Stockholder's Equity asat December 31 Description 7% Preferred Stock 5600 shares issued and outstanding Common Stock 130 250 shares issued and outstanding @ $5 per share Paid in capital in excess of par vale-common stock Paid in capital in excess of par value-preferred stock Paid in Capital from treasury Stock Retained eamings Total Less Cost of treasury Stock 7300 shares @ $ 16 each Total Stock holders Equity $ 6,51,250 4,19,750 24,000 600 4,10,000 20,65,600 $ S $ $ 1,16,800 19,48,800

Cash Date Description Amount Date Description Amount Treasury Stock $ 24,000 Treasury Stock $ 1,60,000 $ $ 3,000 25,000 Paid in Capital from treasury Stock Common Stock Paid in Capital in excess of par value of common stock Treasury stock $ $ 40,000 16,800 Balance 51,200 1,60,000 $ $ 1,60,000 Common Stock Date Description Amount Date Description Amount Balance $ 6,51,250 Opening Balance Bonds Payable Cash $ $ $ 6,00,000 26,250 25,000 $ 6,51,250 $ 6,51,250 Paid in capital in excess of Common Stock Date Description Amount Date Description Amount Opening Balance Bonds payable Premium on bonds Payable Cash $ $ $ $ 3,60,000 15,750 4,000 40,000 Balance $ 4,19,750 $ 4,19,750 $ 4,19,750 Preferred Stock Date Description Amount Date Description Amount $ $ Opening Balance Equipment 5,00,000 60,000 Balance $ 5,60,000 $ 5,60,000 $ 5,60,000 Treasury Stock Date Description Amount Date Description Amount Cash $ 1,60,000 Cash Cash Paid in capital for treasury Stock Balance $ $ $ $ $ 24,000 16,800 2,400 1,16,800 1,60,000 $ 1,60,000 Paid in capital for treasury Stock Date Description Amount Date Description Amount Cash 3000 Treasury Stock Balance $ $ 2,400 600 $ 3,000 3000 Retained Earnings Date Description Amount Date Description Amount Opening balance Income transferred 325000 85000 Balance $ 4,10,000 $ 4,10,000 410000