Elizabeth Company reported the following amounts in the stockholders\' equity se

Question

Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet.

Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000
Additional paid-in capital 125,000
Retained earnings 490,000
Total $915,000

During 2011, Elizabeth took part in the following transactions concerning stockholders' equity.

1. Paid the annual 2010 $10 per share dividend on preferred stock and a $8 per share dividend on common stock. These dividends had been declared on December 31, 2010.
2. Purchased 1,700 shares of its own outstanding common stock for $41 per share. Elizabeth uses the cost method.
3. Reissued 700 treasury shares for land valued at $30,700.
4. Issued 500 shares of preferred stock at $107 per share.
5. a 10% stock dividend on the outstanding common stock when the stock is selling for $50 per share.
6. Issued the stock dividend.
7. Declared the annual 2011 $10 per share dividend on preferred stock and the $8 per share dividend on common stock. These dividends are payable in 2012.

(a) Prepare journal entries to record the transactions described above.

(b) Prepare the December 31, 2011, stockholders' equity section. Assume 2011 net income was $330,000

Explanation / Answer

1. Paid the annual 2010 $10 per share dividend on preferred stock and a $8 per share dividend on common stock. These dividends had been declared on December 31, 2010. 31 Dec 2010 Retained Earnings Dr $180,000 Dividend Payable-COmmon Stock Cr $160,000 Div Payable - Pref Stock Cr $20,000 (Record DIv Payable COmmon stock 20,000*$8=$160,000, Pref Shre 2000*$10 = $20,000) 31 Dec 2010 Dividend Payable-COmmon Stock Dr $160,000 Div Payable - Pref Stock Dr $20,000 Cash Cr $180,000 (To record payment of Dividend to Pref Shareholders & COmmon shareholders) 2. Purchased 1,700 shares of its own outstanding common stock for $41 per share. Elizabeth uses the cost method. mmddyy Treasury Stock Dr 69,700 Cash Cr 69,700 (Purch of 1700 Shares @$41 = 69,700 ) 3. Reissued 700 treasury shares for land valued at $30,700. mmddyy Land Dr 30,700 Treasuery Stock Cr $28,700 Additional paid-in-capital (treasury stock) Cr 2,000 (700 Share @$41 = $28700) 4. Issued 500 shares of preferred stock at $107 per share. mmddyy Cash Dr 53500 Pref Shares Cr 50,000 Additional Paid-in-Capital -Pref Cr 3500 ( Pref Shares Par $100*500 = 50,000) 5. a 10% stock dividend on the outstanding common stock when the stock is selling for $50 per share. mmddyy Retained Earnings (1900 shares X $50) Dr 95,000 Common Stock Dividend Distributable (1900*$5) Cr $9,500 Paid-in Capital in Excess of Par Cr $85,500 ( No of common shares = 20000-1700+700 = 19000 shares. So 10% Stock div = 1900 shares) 6. Issued the stock dividend. mmddyy Common Stock Dividend Distributable Dr 9500 Common Stock Cr 9500 7. Declared the annual 2011 $10 per share dividend on preferred stock and the $8 per share dividend on common stock. These dividends are payable in 2012. 31 Dec 2011 Retained Earnings Dr $180,000 Dividend Payable-COmmon Stock Cr $160,000 Div Payable - Pref Stock Cr $20,000 (Record DIv Payable COmmon stock 20,000*$8=$160,000, Pref Shre 2000*$10 = $20,000) Preferred stock, 10%, $100 par (10,000 shares authorized, 2,500 shares issued) $250,000 Additional paid-in capital-Pref 3500 Common stock, $5 par (100,000 shares authorized, 20,900 shares issued) $104,500 Additional paid-in capital $210,500 Retained earnings (490,000+330,000-180,000-95000-180,000) $365,000 Less: Treasury Stock, at cost (1000 shares at $41) ($41,000) Dividend Payable $$180,000

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