Major League Apparel has two classes of stock authorized: 5%, $10 par preferred,

Question

Major League Apparel has two classes of stock authorized: 5%, $10 par preferred, and $1 par value common. The following transactions affect the stockholders equity during 2018, its first year of operations:

January 2 Issue 100,000 shares of common stock for $63 per share.
February 14 Issue 53,000 shares of preferred stock for $11 per share.
May 8 Repurchase 10,000 shares of its own common stock for $53 per share.
May 31 Reissue 5,000 shares of treasury stock for $58 per share.
December 1 Declare a cash dividend on its common stock of $0.65 per share and a $26,500 (5% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15.
The dividend is payable on December 30 (Hint. Dividends are not paid on treasury stock.)
December 30 Pay the cash dividends declared on December 1.

1. Record each of these transactions, and record the dividends entry on the date of record (December 15).

2. Prepare the stockholders' equity section of the balance sheet as of December 31, 2018. Net income for the year was $483,000.

Explanation / Answer

A.Jan. 2 Issue 100,000 shares of common stock for $63 per share.
Dr Cash 63,00,000
Cr Common Stock 100,000
Cr Paid in Capital in Excess of Par Value, Common Stock 62,00,000

Feb. 14 Issue 53,000 shares of preferred stock for $11 per share.
Dr Cash 583,000
Cr Preferred Stock 530,000
Cr Paid in Capital in Excess of Par Value, Preferred Stock 53,000

May 8 Repurchase 10,000 shares of its own common stock for $53 per share.
Dr Treasury Stock 503,000
Cr Cash 503,000
*There are now 90,000 shares of common stock outstanding

May 31 Reissue 5,000 shares of treasury stock for $58 per share.
Dr Cash 290,000
Cr Common Treasury Stock 265,000
Cr Paid-in Capital on Sale of Treasury Stock 25,000
*There are now 95000 shares of common stock outstanding.

Dec. 1
Declare a cash dividend on its common stock of $.65 per share and a $26,500 (5% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.)
95,000 x 0.65 = $61,750 common dividends
Preferred dividends = $26500
Dr Retained Earnings $88250
Cr Dividends Payable $88250

Dec. 30 Pay the dividends declared on December 1.
Dr Dividends Payable $88250
Cr Cash $88250

BALANCE SHEET

EQUITY 95000@1=95000

PREF CAPITAL 53000@10=530000

Treasury Stock = 503,000 - 265,000 = $238,000
Retained Earnings = 483000 - 88250=$394750

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