Sunset Corporation stockholders\' equity consisted of the following on January 1

Question

Sunset Corporation stockholders' equity consisted of the following on January 1, 2006: Stockholders' Equity Paid-in capital Capital stock 6% Preferred stock, $100 par value, cumulative, 50,000 shares authorized, 30,000 shares issued and outstanding $ 3,000,000 Common stock, no par, $10 stated value, 1,000,000 shares authorized, 400,000 shares issued and outstanding 10,000,000 Total capital stock 13,000,000 Additional paid-in capital In excess of par value—preferred $300,000 In excess of stated value—common 600,000 900,000 Total paid-in capital 13,900,000 Retained earnings (Note A) 4,100,000 Total stockholders' equity $18,000,000 Note A: Preferred dividends are in arrears for 2005. Instructions Prepare the appropriate journal entries, if any, for the following transactions in 2006. You may omit journal entry explanations but you should show computations. 1/25/06 Issued 20,000 shares of common stock for $40 per share. 2/18/06 The Board of Directors declared a cash dividend on preferred and common stock totaling $700,000, payable on March 15, to stockholders of record on February 28. (Record dividends payable on preferred and common stock in separate accounts.) 2/28/06 Date of record for cash dividends on preferred and common stock. 3/15/06 Paid the cash dividend to preferred and common stockholders. 5/20/06 Declared a 10% stock dividend on the common stock, payable on June 15, to stockholders of record on May 31. The market value of Sunset Corporation's common stock was $40 per share. 6/15/06 Distributed stock dividend to common stockholders. 7/10/06 Purchased 40,000 shares of common stock for the treasury at $40 per share.

Explanation / Answer

Journal entries:

Date Accounts and explanations Debit ($) Credit ($) Jan. 25, 2006 Cash (20,000 shares * $40 per share) 800,000     Additional paid-in capital in excess par - Common stock (20,000*$30 per share) ($40 - $10) 600,000     Common stock (20,000*$10) 200,000 (To record the issue of common stock with premium) Feb. 8, 2006 Dividends - Preferred stock ($3,000,000*6/100) 180,000    Dividends payable - Preferred stock 180,000 (To record the declaration of cash dividends on preferred stock) Feb. 8, 2006 Dividends - Common stock ($700,000 - $180,000) 520,000    Dividends payable - Common stock 520,000 (To record the declaration of cash dividends on common stock) Mar. 15, 2006 Dividends payable - Preferred stock 180,000 Dividends payable - Common stock 520,000    Cash 700,000 (To record the payment of dividends on common and preferred stocks by cash) May. 20, 2006 Stock dividends - Common stock (400,000 shares*$10 per share + $200,000 = $4,200,000*10/100) 420,000     Stock dividends payable - Common stock 420,000 (To record the declaration of 10% stock dividends on common stock) June. 15, 2006 Stock dividends payable - Common stock 420,000    Common stock 420,000 (To record the distribution of stock dividends on common stock) July. 10, 2006 Tresury stock (40,000 shares * $40 per share) 1,600,000    Cash 1,600,000 (To record the purchase of 40,000 treasury stock)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.