Question

The ABD Corporation has the following information pertaining to stockholder’s equity as of December 31, 20X5:

Common Stock, $1 par, 300,000 sh. authorized, 180,000 shares Issued and outstanding	$180,000
Paid-in Capital in Excess of Par – Common Stock	450,000
Retained Earnings	1,500,000

REQUIRED:

1. Post the above balances in T accounts shown below.

2. Record the following 20X6 transactions.

3. Record the following first-year transactions in T accounts.

- Issued 40,000 shares of $1.00 par value common stock at a price of $4.00 per share.

- Issued 1,000 shares of 3% Preferred Stock, $100 par value for $105 per share.

- Purchased 12,000 of its own common shares at $3.00 per share.

- Declared and paid a cash dividend of $45,600.

1. Assuming Net Income for 20X6 was $300,000, prepare a stockholder’s equity section of the balance sheet as of December 31, 20X6. Be sure to include the number of Authorized, issued, and outstanding shares.

2. Company management declares a 10% stock dividend when the market price of the stock is $4.25 per share. Record the entry for this dividend. (show calculations)

Answer 1

Solution 1:

Common Stock
Particulars	Debit	Particulars	Credit
		By beginning balance	$180,000.00

Paid in capital in excess of par - Common Stock
Particulars	Debit	Particulars	Credit
		By beginning balance	$450,000.00

Retained Earnings
Particulars	Debit	Particulars	Credit
		By beginning balance	$1,500,000.00

Solution 2:

Journal Entries - ABD Corporation
Event	Particulars	Debit	Credit
1	Cash Dr	$160,000.00
	To Common Stock		$40,000.00
	To Paid in capital in excess of par - Common stock		$120,000.00
	(To record issue of common shares)
2	Cash Dr	$105,000.00
	To 3% Preferred Stock		$100,000.00
	To Paid in capital in excess of par - Preferred stock		$5,000.00
	(To record issue of preferred sharesshares)
3	Treasury Stock Dr	$36,000.00
	To Cash		$36,000.00
	(To record purchase of own shares)
4	Dividends Dr	$45,600.00
	To Cash		$45,600.00
	(To record payment of dividend)

Solution 3:

Common Stock
Particulars	Debit	Particulars	Credit
To Ending balance	$220,000.00	By beginning balance	$180,000.00
		By Cash	$40,000.00
Total	$220,000.00	Total	$220,000.00

Paid in capital in excess of par - Common Stock
Particulars	Debit	Particulars	Credit
To Ending balance	$570,000.00	By beginning balance	$450,000.00
		By Cash	$120,000.00
Total	$570,000.00	Total	$570,000.00

Retained Earnings
Particulars	Debit	Particulars	Credit
To Ending balance	$1,500,000.00	By beginning balance	$1,500,000.00
Total	$1,500,000.00	Total	$1,500,000.00

Preferred Stock
Particulars	Debit	Particulars	Credit
To Ending balance	$100,000.00	By Cash	$100,000.00
Total	$100,000.00	Total	$100,000.00

Paid in capital in excess of par - Preferred Stock
Particulars	Debit	Particulars	Credit
To Ending balance	$5,000.00	By Cash	$5,000.00
Total	$5,000.00	Total	$5,000.00

Treasury Stock
Particulars	Debit	Particulars	Credit
To Cash	$36,000.00	By ending balance	$36,000.00
Total	$36,000.00	Total	$36,000.00

Dividends
Particulars	Debit	Particulars	Credit
To Cash	$45,600.00	By Ending balance	$45,600.00
Total	$45,600.00	Total	$45,600.00

Solution 4:

ABD Corporation
Balance Sheet - Stockholder's Equity Section
December 31, 20X6
Particulars	Amount
Stockholders Equity:
Common Stock, $1 par, 300,000 shares authorized, 220,000 shares Issued and outstanding	$220,000.00
3% preferred stock, $100 par, 1000 shares issued and outstanding	$100,000.00
Paid-in capital in excess of par—common stock	$570,000.00
Paid-in capital in excess of par—preferred stock	$5,000.00
Retained Earnings ($1,500,000 + $300,000 - $45,600)	$1,754,400.00
Treasury Stock	-$36,000.00
Total Stockholder's Equity	$2,613,400.00

Solution 5:

Journal Entries - ABD Corporation
Event	Particulars	Debit	Credit
1	Stock dividend Dr [(220000-12000)*10%*$4.25]	$88,400.00
	To common stock dividend distriubtable		$88,400.00
	(To record stock dividend declared)
2	Common stock dividend distriubtable Dr	$88,400.00
	To Common Stock		$20,800.00
	To Paid in capital in excess of par - Common stock		$67,600.00
	(To record issue of stock dividend)