Equity transactions. Foley Corporation has the following capital structure at th
ID: 2375182 • Letter: E
Question
Equity transactions.Foley Corporation has the following capital structure at the beginning of the year:
6% Preferred 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 isssued and outstanding
Paid-in capital in excess of par
Total paid-in capital
Instructions
(a) Record the following transactions which occurred consecutively (show all calculations).
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 10% common stock dividend was declared. The average market value of the common stock is $18 a share
3 Assume that net income for the year was $150,000 (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.
Explanation / Answer
Lets look at Journal entries first :- 12-31-x9 Retained earnings (Dividends) Dr $90,000 Dividends Payable -Pref Share Cr $18,000 Dividends Payable -Common stock Cr 72,000 To record declaration of cash dividends (Pref Share Div 6%*$50*6000, Balance 90000-18000 = 72000 is then DIv on COmmon stock) Stock dividend : A stock dividend is considered to be small if the new shares being issued are less than 20-25% of the total number of shares outstanding prior to the stock dividend. On the declaration date of a small stock dividend, a journal entry is made to transfer the market value of the shares being issued from retained earnings to the paid-in capital section of stockholders' equity. Issued Common Stock Dividend = 10%*40,000 = 4000 shares 12-31-x9 Retained Earnigs Dr $72,000 Common Stock (4000 × $10) Cr $40,000 Additional Paid-in-Capital (4000*$8) Cr $32,000 Issue 4000 common stock for $18 12-31-X9 Income Summary Dr $150,000 Retained Earnings Cr 150,000 To close Income Summary to retained earnings (note that the balance is equal to the net income resulting from netting all revenues and expenses) 12-31-x9 Retained Earnigs Dr 70,000 Appropriated for Plant Expansion Cr $70,000 Appropriated $70,000 of retained earnings for plant expansion Stockholders' equity section: Retained Earnings $150,000 Less: Appropriated for Plant Expansion $70,000 Less : Common Stock Div $72,000 Less : Pref Shares Div $18,000 Less : Stock dividend $72,000 ----------------------------------------- Bal Retained earnings ($82,000) ------------------------------------------------ So STockeholder Equity section wil be as below :- 6% Preferred stock, $50 par value, 20,000 shares authorized, 6,000 shares issued and outstanding $300,000 Common stock, $10 par value, 60,000 shares authorized, 44,000 shares isssued and outstanding $440,000 Additional Paid-in-Capital-Common Stock $32,000 Retained Earnings ($80,000) ----------------------------------------------- Total Stockholders' Equity $692,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.