Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par
ID: 2456506 • Letter: S
Question
Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par value common. As of the beginning of 2012, 1,000 shares of preferred stock have been issued and 20,000 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2012:
March 1 Issue 3,000 additional shares of common stock for $22 per share.
April 1 Issue 5,000 additional shares of preferred stock for $110 per share.
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share.
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.
Sweet Sixteen has the following beginning balances in its stockholders’ equity accounts on January 1, 2012: preferred stock, $100,000, common stock, $20,000; paid-in capital, $380,000; and retained earnings, $450,000. Net income for the year ended December 31, 2012, is $65,000.
Required:
1. Record each of these transactions.
2. Indicate whether each of these transactions would increase (+), decrease (), or have no effect (NE) on total assets, total liabilities, and total stockholders’ equity by completing the following chart.
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Declare cash dividends
Pay cash dividends
Repurchase treasury stock
Reissue treasury stock
3. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2012.
4. Prepare the statement of stockholders’ equity for the year ended December 31, 2012.
5. Explain how items 3 and 4 are similar and how they are different.
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Issue preferred stock
Declare cash dividends
Pay cash dividends
Repurchase treasury stock
Reissue treasury stock
Explanation / Answer
Answer
Beginning of 2012, 1,000 shares of preferred stock have been issued
Jan 1
Dr Cash 100,000
Cr Preferred Stock100,000
March 1 Issue 3,000 additional shares of common stock for $22 per share.
March 1
DR Cash 6,600
CR Common Stock 6,600
April 1 Issue 5,000 additional shares of preferred stock for $110 per share
April 1 DR Cash 550,000
CR Preferred stock 550,000
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 1
DR Cash Dividend (23,000*1) = 23,000
CR Dividend payable 23,000
(common stock)
DR Cash Dividend (4,000*5) = 20,000
CR Dividend payable 20,000
(Preferred stock)
June 30 Pay the cash dividends declared on June 1
June 30
DR Dividend payable, preferred 20,000
DR Dividend payable , common 23,000
CR Cash 43,000
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share
August 1
Dr Treasury Stock (2,000*18) 36,000
Cr Cash 36,000
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share
October 1
DR Cash 20,000
CR Treasury Stock(1,000*20)20,000
2. Indicate whether each of these transactions would increase (+), decrease (), or have no effect (NE) on total assets, total liabilities, and total stockholders’ equity by completing the following chart
stock have been issued
Jan 1
Dr Cash 20,000
Cr Common Stock20,000
Beginning of 2012, 1,000 shares of preferred stock have been issued
Jan 1
Dr Cash 100,000
Cr Preferred Stock100,000
March 1 Issue 3,000 additional shares of common stock for $22 per share.
March 1
DR Cash 6,600
CR Common Stock 6,600
April 1 Issue 5,000 additional shares of preferred stock for $110 per share
April 1 DR Cash 550,000
CR Preferred stock 550,000
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 1
DR Cash Dividend (23,000*1) = 23,000
CR Dividend payable 23,000
(common stock)
DR Cash Dividend (4,000*5) = 20,000
CR Dividend payable 20,000
(Preferred stock)
June 30 Pay the cash dividends declared on June 1
June 30
DR Dividend payable, preferred 20,000
DR Dividend payable , common 23,000
CR Cash 43,000
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share
August 1
Dr Treasury Stock (2,000*18) 36,000
Cr Cash 36,000
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share
October 1
DR Cash(1,000*20) 20,000
CR Treasury Stock18,000
Cr Additional Paid in capital 2,000
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Increase
Issue preferred stock
Increase
Declare cash dividends
Increase
Pay cash dividends
Decrease
Repurchase treasury stock
Decrease
Increases
Reissue treasury stock
Increase
Decreases
3. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2012.
Stockholders' Equity
Add:
Common Stock $26,600
Retained Earnings 450,000
Net income 65,000
Additional paid in capital(beginning) 380,000
Treasury stock 2,000
Less:
Treasury Stock 18,000
Dividend paid 43,000
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . .$862,600
4. Prepare the statement of stockholders’ equity for the year ended December 31, 2012.
Statement of Stockholders' Equity
Common Stock . . . . . . . . . . . . . . . . . . . $ 26,600
Preferred Stock . . . . . . . . . . . . . . . . . . ..650,000
Additional Paid-In Capitals . . . . . . . . . . . ..2,000
Less: Treasury Stock . . . . . . . . . . . . . . . ..18,000
Total Contributed Capital . . . . . . . . . . . . .660,600
Retained Earnings . . . . . . . . . . . . . . . . ..472,000
Total Stockholders' Equity . . . . . . . . . . .$1,132,600
5. Explain how items 3 and 4 are similar and how they are different
Stockholders equity purely tells details about the equity which company owns excluding the preferred stock as it has liabilities entitled on preferred stocks.
Whereas Statement of Stockholders' Equity talks about whole equity items including the preferred stock
Transaction
Total
Assets
Total Liabilities
Total
Stockholders’
Equity
Issue common stock
Increase
Issue preferred stock
Increase
Declare cash dividends
Increase
Pay cash dividends
Decrease
Repurchase treasury stock
Decrease
Increases
Reissue treasury stock
Increase
Decreases
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