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 2015, National League’s first year of operations:

Declare a cash dividend on its common stock of $1.30 per share and a $636,000 (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.)

Pay the dividends declared on November 1.

Record each of these transactions.

B)

Prepare the stockholders’ equity section of the balance sheet as of December 31, 2015. Net income for the year was $4,830,000. (Amounts to be deducted should be indicated by a minus sign.)

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 2015, National League’s first year of operations:

Explanation / Answer

Hey Dear Student !

A) Journal in the Books of National League Gear:-

02.Feb. ($ in Million)

Bank A/c..Dr 36.40
To Security Premium A/c. 29.90
To Common Equity A/c 6.50
(Being Share Issued)

04.Feb.

Bank A/c..Dr 11.66
To Security Premium A/c. 1.06
To Preferred Equity A/c 10.60
(Being Share Issued)

15.June

Common Shares A/c..Dr. 0.65
Security Premium A/c..Dr. 2.34
To Bank A/c 2.99
(Being Shares Repurchased)

15.Aug

Bank A/c..Dr. 3.705
To Common Stock A/c. 0.4875
To Security Prem A/c. 3.2175
(Being Shares Issued)

01.Nov

Security Prem. A/c Dr. 2.28375
To Dividend on Common. 1.64775
(1.2675*1.30)
To Dividend on Preferred 0.636
(Being Dividend Declared)

30.Nov

Div on Commn A/c.. Dr. 1.64775
Div on Preferred A/c.Dr. 0.636
To Cash/Bank A/c. 2.28375
(Being Dividend Paid)

B)

Balance Sheet as on 30. Nov
Equity. ($ in million)

Common Stock. 6.3375
1.2675 shares*5

Preferred Stock. 10.60
0.53*20

Security Premium. 29.55375
(Balance in Journal
Entries)

Total. 46.49125

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