Question

On December 31, 2021, Carla Vista Co. had 1,300,000 shares of $6 par common stock issued and outstanding. At December 31, 2021, stockholders’ equity had the amounts listed here.

Common Stock $7,800,000

Additional Paid-in Capital 1,840,000

Retained Earnings 1,215,000

Transactions during 2022 and other information related to stockholders’ equity accounts were as follows.

1. On January 10, issued at $105 per share 127,000 shares of $104 par value, 8% cumulative preferred stock.

2. On February 8, reacquired 15,100 shares of its common stock for $11 per share.

3. On May 9, declared the yearly cash dividend on preferred stock, payable June 10, to stockholders of record on May 31.

4. On June 8, declared a cash dividend of $1.25 per share on the common stock outstanding, payable on July 10, to stockholders of record on July 1.

5. Net income for 2022 was $3,553,000.

Record the journal entries that are required for items 1–5 above.

Date Account Titles and Explanation Debe Credit (To close net income) To close cash dividends)

Answer 1

Debit $13,335,000 Credit [127,000 shares x $105 --> Total cash proceeds received] $13,208,000 (127,000 shares x $104 --> Face value of the preferred stock] $127,000 (Balancing fig. --> $13335000 - $13208000] (15,100 shares x $11] $166,100 ($13208000 x 8% --> Ref: Jan.10's entry for face value] $1,056,640 [Dividend is payable on face value of preferred stock] $166,100 $1,056,640 $1,606,125 $1,606,125 [(1,300,000 - 15,100) shares x $1.25] Date Account Titles and Explanation Jan. 10 Cash Preferred Stock Additional Paid-in Capital-Preferred Feb. 8 Treasury Stock Cash May. 9 Dividends Dividend Payable Jun. 8 Dividends Dividend Payable Jun. 10 Dividend Payable Cash Jul. 10 Dividend Payable Cash Dec. 31 Income Summary Retained Earnings (To close net income) Dec. 31 Retained Earnings Dividends (To close dividends) $1,056,640 $1,056,640 [Preferred dividend payable recorded on May. 9 is paid] $1,606,125 $1,606,125 (Common dividend payable recorded on Jun. 8 is paid] $3,553,000 $3,553,000 (Retained earnings is credited as it is an increase in retained earnings] $2,662,765 ($1056640 + $1606125 --> Ref: Entries dated May. 9 & Jun. 8] $2,662,765 [Retained earnings is debited as it is a decrease in retained earnings]