Question

1) Larkspur, Inc. issues 8,700 shares of $101 par value preferred stock for cash at $118 per share.

Journalize the issuance of the preferred stock.

2)The stockholders’ equity section of Culver Corporation’s balance sheet consists of common stock ($8 par) $1,040,000 and retained earnings $500,000. A 10% stock dividend (13,000 shares) is declared when the market price per share is $18.

(a) Show the before-and-after effects of the dividend on the components of stockholders’ equity.

Answer 1

1
	Debit	Credit
Cash	1026600		=8700*118
Preferred Stock		878700	=8700*101
Paid in Capital in excess of par-Preferred Stock		147900
To record the issuance of the preferred stock.
2
	Before dividend	After dividend
Stockholders’ equity
Paid-in capital
Common stock	1040000	1144000
Paid in Capital In excess of par-Common Stock	0	130000
Total paid-in capital	1040000	1274000
Retained earnings	500000	266000
Total stockholders’equity	1540000	1540000
Workings:
Value of Stock Dividend	234000	=13000*18
Common stock increase	104000	=13000*8
Paid in Capital In excess of par-Common Stock	130000	=13000*(18-8)
Retained earnings	266000	=500000-234000