Question

PROBLEM 1. The stockholders' equity section of Dobroskey Corporation's balance sheet as of December 31, 2019 is as follows: Stockholders' Equity - Preferred Stock. 4% $100 par value, 100,000 shares authorized and 5000 shares issued and outstanding $500,000 - Common stock. $10 par value: authorized, 2,000,000 shares auth: issued and outstanding 60,000 shares $600.000 Paid-in capital in excess of par = $850.000 - Retained earnings - $4.000.000 The following events occurred during 2020: - Jan. 5: 20,000 shares of authorized and unissued common stock were sold for $19 per share. - Jan. 16: Declared a cash dividend of 10 cents per share on the common stock, payable February 9 to stockholders of record on February 5. Feb. 9 Paid the dividend declared on Jan. 16 - Feb. 20 30,000 shares of authorized and unissued common stock were sold for $22 per share. - Mar 1: A 10% stock dividend was declared. Market value per share is currently $24. Apr. 1: The common stock dividend that was declared on March 1 was issued. Jul 1: 2.000 shares of Treasury Stock was purchased at $30 per share. - Sept. 1: 1.000 shares of Treasury Stock were sold for $32 per share. - Dec. 31: The preferred dividend was declared and a common dividend of 50 cents a share was declared Dec. 31: Income for the year was $575.000 Instructions 1. Prepare all journal entries necessary for each of the transactions in 2020. 2. Post transactions to T-accounts 3. Prepare the 12/31/2020 Stockholder equity section of the balance sheet. 4. How many shares of cominon stock would be outstanding if a two for one stock split was declared on December 30th?

Answer 1

1	Date	Account titles					Debit	Credit
	Jan 5.	Cash		(20000*19)			380000
		Common stock		(20000*10)				200000
		Paid-in capital in excess of par			(Plug)			180000
		(Common stock issued)
	Jan 16.	Dividends		(60000+20000)*0.10			8000
		Dividend payable						8000
		(Dividend declared)
	Feb 9.	Dividend payable					8000
		Cash						8000
		(Dividend paid)
	Feb 20.	Cash		(30000*22)			660000
		Common stock		(30000*10)				300000
		Paid-in capital in excess of par			(Plug)			360000
		(Common stock issued)
	Mar 1.	Stock dividend			(60000+20000+30000)*10%*24		264000
		Stock dividend distributable			(60000+20000+30000)*10%*10			110000
		Paid-in capital in excess of par			(Plug)			154000
		(Stock dividend declareded)
	Apr 1.	Stock dividend distributable					110000
		Common stock						110000
		(Stock dividend issued)
	Jul 1.	Treasury stock		(2000*30)			60000
		Cash						60000
		(Treasury stock purchased)
	Sept 1.	Cash		(1000*32)			32000
		Treasury stock		(1000*30)				30000
		Paid-in capital in excess of par			(Plug)			2000
		(Treasury stock sold)
	Dec 31.	Dividends			(Note:1)		80000
		Dividend payable						80000
		(Dividend declared)
	Dec 31.	Retained earnings					352000
		Dividends		(8000+80000)				88000
		Stock dividend						264000
		(To close dividend)
	Dec 31.	Income summary					575000
		Retained earnings						575000
		(Income for the year)
	Note:1
	Preferred dividend=Preferred stock in $*Preferred stock %=500000*4%=$ 20000
	Common dividend:
	It is declared on common stock outstanding

Common stock outstanding as on Dec 31: Shares Beginning balance 60000 Add: Shares issued in 2020 (20000+30000) 50000 Stock dividend issued (60000+50000) *10% 11000 121000 Less:Shares in treasury stock (2000-1000) 1000 Common stock outstanding as on Dec 31 120000 Common dividend=Common stock outstanding as on Dec 31*0.50=120000*0.50=$ 60000 Total dividend=Preferred dividend+Common dividend=20000+60000=$ 80000 2 Date Jan 5. Feb 20. Sept 1. Date Feb 9. Cash Debit Date 380000 Feb 9. 660000 Jul 1. 32000 1072000 1004000 Credit 8000 60000 Dividend payable Debit Date 8000 Jan 16. Dec 31. 8000 Bal. Credit 8000 80000 88000 80000 68000 Bal. Date Date Common stock Debit Date Jan 1. Credit Stock dividend distributable Debit Date Credit 110000 Mar 1. 110000 110000 110000 Apr 1. 600000 Jan 5. 200000

110000 110000 Jan 5. Feb 20. 200000 300000 110000 1210000 Apr 1. 0 Bal. 1210000 Date Preferred stock Debit Date Jan 1. Date Credit 500000 Paid-in capital in excess of par Debit Date Credit Jan 1. 850000 Jan 5. 180000 Feb 20. 360000 Mar 1. 154000 Sept 1. 2000 0 1546000 Bal. 1546000 Date Dec 31. Retained earnings Debit Date 352000 Jan 1. Dec 31. Date Jul 1. Treasury stock Debit Date 60000 Sept 1. 60000 30000 Credit 4000000 575000 4575000 Credit 30000 30000 352000 Bal. Bal. 4223000

Date Jan 16. Dec 31. Dividends Debit Date 8000 Dec 31. 80000 88000 Credit 88000 Date Mar 1. Stock dividend Debit Date 264000 Dec 31. 264000 Credit 264000 264000 88000 3 Stockholder's equity $ 500000 Preferred stock,4% $100 par value, 100000 shares authorized and 5000 shares issued and outstanding Common stock, $10 par value,authorized 2000000 shares auth; 121000 shares issued and 120000 shares outstanding Paid-in capital in excess of par Total paid-in capital Retained earnings Total paid-in capital and retained earnings Less:Treasury stock Total stockholder's equity 1210000 1546000 3256000 4223000 7479000 30000 7449000 4 Common stock shares outstanding before stock split=120000 Stock split is for 2:1 2 shares for every 1 existing share Hence, Number of common shares outstanding will double Common stock shares outstanding after stock split=120000*2=240000