Question

In. Foley Corporation has the following capital sin Ollowing capital structure at the beginning of the year: $ 300,000 5% Preferred stock, $50 par erred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding common stock, $10 par value. 60.000 shares authorized, 40,000 shares issued and outstanding Paid-in capital in excess of par Total paid-in capital Retained earnings Total stockholders' equity 400,000 110,000 810,000 440,000 $1,250,000 Instructions (a) Record the following transactions which occurred consecutively (show all calculations). (15 points) 1. A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts. 2. A 15% common stock dividend was declared. The average fair value of the common stock is $25 a share. 3. Assume that net income for the year was $160,000 (record the closing entry) and the board of directors appropriated $70,000 of retained earnings for plant expansion. (b) Construct the stockholders' equity section incorporating all the above information. (10 points)

Answer 1

working:

1. amount of dividend to be paid to preferred share holders =.300,000*5%

=>$15,000.

amount of cash dividends to be paid to common stock holders =>90,000-15,000

=>$75,000.

2.amount of stock dividend =15%*40,000 shares =>6,000 Shares.

the following are journal entries:

sno	accounts	debit	credit
1.	retained earnings a/c	90,000
	..........To common stock dividend payable a/c		75,000
	..........To preferred dividend payable a/c		15,000
	(to record dividends declared)
	common stock dividend payable a/c	75,000
	preferred dividend payable a/c	15,000
.	..............To cash a/c		90,000
	(dividends paid)
2.	retained earnings a/c (6000*$25)	150,000
	........To stock dividend payable a/c		150,000
	(to record the declaration of stock dividend)
3.	stock dividend payable a/c	150,000
	..........To common stock a/c (6000 shares *$10)		60,000
...	..........To paid in capital in excess of par		90,000
	(to record allocation of share as dividend)
4.	Income summary a/c	160,000
	..........To retained earnings		160,000
	Retained earnings a/c	70,000
	...........To Appropriated retained earnings a/c		70,000

b.stock holders equity section:

5% preferred stock.$50 par value 6000 shares issued and outstanding	300,000
common stock, $10 par value, (40,000+6000)shares issued and outstanding	460,000
paid in capital in excess of par (110,000+90,000)	200,000
total paid in capital	960,000
retained earnings (440,000+160,000-70,000 - 90,000-150,000)	290,000
appropriated retained earnings (towards plant expansion)	70,000
total stock holders equity	1,320,000