National League Gear has two classes of stock authorized: 6%, $20 par preferred,

Question

National League Gear has two classes of stock authorized: 6%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2012, National League’s first year of operations:

Feb. 2 Issue 1 million shares of common stock for $25 per share.
Feb. 4 Issue 500,000 shares of preferred stock for $22 per share.

Jun. 15 Repurchase 100,000 shares of its own common stock for $20 per share.

Aug. 15 Reissue 75,000 shares of treasury stock for $35 per share.

Nov. 1 Declare a cash dividend on its common stock of $1 per share and a $600,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders on record on November 15. (Hint: Dividends are not paid on treasury stock.)

Nov. 30 Pay the dividends declared on November 1.



Record each of these transactions.

Feb. 2, 2012



Feb. 4, 2012



Jun. 15, 2012


Aug. 15, 2012



Nov. 1, 2012


Nov. 30, 2012

Explanation / Answer

Feb. 2 2012 Cash Dr 25,000,000
Common Stock Cr 5,000,000
Additional paid-in capital—common stock Cr 20,000,000
(Issue 1 million shares of common stock for $25 per share, par $5, Premium $20)

Feb. 4 2012 Cash Dr $11,000,000
Pref Stock Cr $10,000,000
Additional paid-in capital—preferred stock Cr 1,000,000
(Issue 500,000 shares of preferred stock for $22 per share, Par$20, Excess $2).)

Jun. 15 2012 Treasury Stock Dr $2,000,000
Cash Cr 2,000,000
(Repurchase 100,000 shares of its own common stock for $20 per share)

Aug. 15 2012 Cash Dr $2,625,000
Treasury stock Cr 1,500,000
Additional paid-in-capital (treasury stock) Cr. 1,125,000
(Reissue 75,000 shares of treasury stock for $35 per share, $20 purchase price)

Nov. 1 2012 Retained Earnings Dr 1,500,000
Div Payable, Pref Shareholders Cr 600,000
Div Payable, Common Shareholders Cr 900,000
(Declare a cash dividend on its common stock of $1 per share *(1M-100,000=900,000) and a $600,000 cash dividend on its preferred stock)

Nov. 30 2012 Div Payable, Pref Shareholders Dr 600,000
Div Payable, Common Shareholders Dr 900,000
Cash Cr 1,500,000
(Pay the dividends declared on November 1)

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