Question

Unit 7 Discussion Question Milton Company's charter authorizes 1,000,000 shares of common stock and 400,000 shares of preferred stock. In its first year of operations during 2018, the company presented the following transactions: • Issued 5,000 shares of common stock. Stock has par value of $0.01 per share and was issued at $30 per share. • Earned Net income $200,000 • Paid dividends of $5 per share. Required. 1. Prepare the journal entry to record the following: a. Common stock shares issued b. Close out net income to retained earnings c. Dividend paid d. Close out dividend to retained earnings. 2. Prepare the Stockholders equity section of the company's balance sheet at December 31, 2018 and include the following information information on par values, ► the number of shares authorized and issued where necessary and the sub total for the total paid in capital total stockholders' equity

Answer 1

Requirement 1:

	Account title and Explanation	Debit	Credit
a	Cash [5,000 x $30]	$150,000
	Common stock [5,000 x $0.01]		$50
	Paid-in capitla in excess of par		$149,950
	[To record issuance of common stock]
b	Income summary	$200,000
	Retained earnings		$200,000
	[To close net income]
c	Cash dividends [5,000 x $5]	$25,000
	Cash		$25,000
	[To record payment of dividends]
d	Retained earnings	$25,000
	Dividends		25000
	[To close dividend account]

Requirement 2:

Milton Company
Balance sheet
As of December 31,2018
Stockholder's Equity:
Paid-in Capital:
Common stock, $0.01 par 1,000,000 shares authorized, 5,000 shares issued and outstanding	$50
Paid-in capital in excess of par	$149,950
Total paid-in capital	$150,000
Retained earnings [200,000 net income - 25,000 dividends ]	$175,000
Total stockholders' equity	$325,000