Question

Sarah Co. has the following stockholders' equity for 12/31/2019: 25,000 A 1,400 26,400 Preferred stock, 8%, $50 par, 8,000 shares authorized, 500 shares issued and outstanding Common stock, $.20 par, 10,000 shares authorized, 7,000 shares issued, and 6,700 shares outstanding Total capital stock Additional paid-in capital: Preferred Common Total paid-in capital Retained earnings Treasury Stock (300 shares at $25 cost) Total stockholders' equity 208,600 235,000 280,000 (7,500) 507,500) $ Required: Record the transactions listed and prepare the 2020 stockholders' equity section of the balance sheet. The company reported NI of $90,000 for 2020. (a) Record the transactions listed. (1) Sold 100 shares of its treasury stock at $35 per share. The company uses the cost method.

Answer 1

Sarah Co Date Credit Debit 3,500 Account Cash Treasury Stock Paid in Capital from Sale of Treasury Stock Calculation =100*35 =100*25 2,500 1,000 15,300 Cash Preferred Stock Paid in Capital in Excess of Par Value-PS =300*51 =300*50 15,000 300 3 No Entry No. of shares changes from 6,800 to 13,600 & par value per share changes from $0.20 to $0.10 8,000 27,200 =(500+300) *10 Workings below 35,200 4 Preferred Dividends Common Dividends Cash Closing entries 31-Dec Income Summary Retained Earnings 90,000 90,000 35,200 31-Dec Retained Earnings Preferred Dividends Common Dividends 8,000 27,200 Workings Common Dividend Declared Opening Common Shares 7,000 Opening Treasury Stock (300) Subtotal 6,700 Treasury Stock sold 100 Subtotal 6,800 Stock Split - 2 for 1 6,800 Number of Common Shares o/s 13,600 Cash Dividend per share 2.00 Common Dividend Declared 27,200 Dividend is paid on 0/s common shares excluding treasury shares =13,600*2 Note

Sarah Co T Accounts Date Debit Date Common Stock Op bal Credit Date Credit Date Debit Date Credit Paid in Capital in Excess of Par Value-CS Op bal $ 208,600 Debit Date Preferred Stock Op bal 2 Date Debit Date Credit Paid in Capital in Excess of Par Value-PS Op bal $ 2 $ 300 $ 1,400 $ $ 25,000 15,000 $ 1,400 40,000 Bal. $ 300 Bal. Treasury Stock 7,500 1 Bal. $ 208,600 Paid in Capital from Sale of Treasury Stock 1 $ 1,000 Bal. $ Retained Earnings 35,200 Op bal $ 31-Dec $ Op bal $ $ 2,500 31-Dec $ 280,000 90,000 Bal. $ 5,000 Bal. $ 1,000 Bal. $ 334,800

Sarah Co Stockholders Equity section of Balance Sheet As of Dec 31, 2020 40,000 Capital Stock Preferred Stock - 8%, $50 par value (8,000 shares authorized, 500 shares issued & outstanding) Common Stock - $0.10 par value (10,000 shares authorized, 13,800 shares issued & 13,600 shares outstanding) Total Capital Stock 1,400 41,400 300 208,600 1,000 Additional Paid in capital Paid in Capital in Excess of Par Value-Preferred Stock Paid in Capital in Excess of Par Value-Common Stock Paid in Capital from Sale of Treasury Stock Total Additional Paid in Capital Total Paid in Capital Retained Earnings Total Paid in Capital Less: Treasury Stock (200 shares @ $25 per share) Total Stockholders Equity 209,900 251,300 334,800 586,100 (5,000) 581,100 Workings Number of common shares issued Opening Common Shares Stock Split - 2 for 1 Total Number of common shares issued 7,000 6,800 13,800