Mario Corporation started business on January 1, 2016. The board of directors au

Question

Mario Corporation started business on January 1, 2016. The board of directors authorized the
following classes of stock:
4% Cumulative preferred stock - $25 par value
Authorized: 40,000
Common Stock - No par value
Authorized: 300,000
The following transactions occurred during 2016:
1/1/16 Issued 120,000 shares of common stock at $10 per share.
6/2/16 Issued 25,000 shares of preferred stock at a market price of $25. The dividend is
payable semiannually on 12/1 and 6/1 beginning 12/1/16.
6/23/16 Purchased 12,000 shares of treasury stock at $8 per share.
10/1/16 Purchased 20,000 shares of treasury stock at $10 per share.
12/1/16 Did not pay semiannual dividend on the 4% preferred stock.
12/31/16 Recorded a net loss of $29,000 for 2016.
The following transactions occurred during 2017:
1/20/17 Sold 22,000 of treasury stock at a market price of $12. Mario uses the weighted
average method to account for treasury stock.
5/15/17 Declared dividends on the 4% preferred stock and a dividend of $.96 per common
share.
6/1/17 Paid all dividends declared on 5/15.
8/15/17 Distributed a 5% stock dividend on common shares outstanding when the market
value of the stock was $10 per share.
10/15/17 Issued 50,000 shares of common stock at a market price of $9 per share.
11/15/17 Declared dividends on the 4% preferred stock.
12/1/17 Paid dividends on the 4% preferred stock.
12/31/17 Recorded a net income of $23,500 for fiscal year 2017.
Required:
1. Record journal entries for each of the 2017 transaction.
2. Prepare comparative stockholders’ equity sections of the balance sheet for the years
ending December 31, 2016 and 2017 in good form.
3. Calculate earnings-per-share for 2016 and 2017.

Explanation / Answer

Calculation of weighted avg price:

On 6/2/16,   12000 shares purchased @ $8 = $96000

On 6/23/16, 20000 shares purchased @ $10 = $200000

Total            32000 shares purchased                   $296000

So, weighted avg price = 296000/32000 = $9

1. JOURNAL ENTRIES :

Date

General Journal

Dr. ($)

Cr. ($)

1-20-17

Cash/Bank A/c… Dr. (22000 shares sold @ $12 per share)

264000

    To Treasury Stock (@$9 per share)

198000

    To Paid in Capital from Treasury Stock(Profit@ $3 per share)

66000

(Being 22000 shares from treasury stock sold)

5-15-17

Income statement A/c… Dr.

130600

    To Preferred Dividend Payable (25000*$25*4%) (note1)

25000

    To Equity Dividend Payable (110000*96%) (note1)

105600

(Being the preferential and equitydividend is declared)

6-1-17

Preferred Dividend Payable A/c … Dr.

25000

Equity Dividend Payable A/c

105600

    To Cash/Bank A/c

130600

(Being the declared dividend is paid)

8-15-17

Retained earnings A/c… Dr.   (110000*5%*10)

55000

     To Common Stock A/c

55000

(Being 5% stock dividend distributed)

10-15-17

Cash/Bank A/c… Dr. (50000 shares @ $9 per share)

450000

Discount on issue of stock A/c… Dr.

50000

     To Common Stock A/c

500000

(Being 50000 shares issued @ $9)

11-15-17

Income statement A/c… Dr.

12500

    To Preferred Dividend Payable (25000*$25*4%/2)

12500

(Being the preferential dividend is declared)

12-1-17

Preferred Dividend Payable A/c … Dr.

12500

    To Cash/Bank A/c

12500

(Being the declared dividend is paid)

Note:

Only after the preferential dividend is fully declared, equity dividend can be declared.

Hence, though payable semi-annually, preferential dividend is payable for a year as was not paid on 12/2.

No of equity shares on 5/15/17 = 120000-20000+22000=110000 shares

2. Stockholder’s Equity Section

Stockholder’s Equity Section

31-12-16

31-12-17

Common Stock, 300000 shares Authorised No par value, 120000

1,200,000

Common Stock, 300000 shares Authorised No par value, 175500

1,755,000

4% Preferred Stock, 40000 shares Authorised $25 par value, 25000

625,000

625,000

Paid in capital from Treasury stock

66,000

Total Paid in capital

1,825,000

2,380,000

Retained Earnings (23500-130600-55000-12500)

(29,000)

(174,600)

Less : Discount on issue of stock

(5,000)

1,796,000

2,200,400

Less : Treasury Stock

(296,000)

(90,000)

1,500,000

2,110,400

3. EPS Calculation

Net Income

(29000)

23500

Weighted avg no of shares

109000

122479

(120000*6/12+108000*3/12+88000*3/12)

(110000*7.5/12+115500*2/12+165500*2.5/12)

EPS

(0.27)

0.19

Date

General Journal

Dr. ($)

Cr. ($)

1-20-17

Cash/Bank A/c… Dr. (22000 shares sold @ $12 per share)

264000

    To Treasury Stock (@$9 per share)

198000

    To Paid in Capital from Treasury Stock(Profit@ $3 per share)

66000

(Being 22000 shares from treasury stock sold)

5-15-17

Income statement A/c… Dr.

130600

    To Preferred Dividend Payable (25000*$25*4%) (note1)

25000

    To Equity Dividend Payable (110000*96%) (note1)

105600

(Being the preferential and equitydividend is declared)

6-1-17

Preferred Dividend Payable A/c … Dr.

25000

Equity Dividend Payable A/c

105600

    To Cash/Bank A/c

130600

(Being the declared dividend is paid)

8-15-17

Retained earnings A/c… Dr.   (110000*5%*10)

55000

     To Common Stock A/c

55000

(Being 5% stock dividend distributed)

10-15-17

Cash/Bank A/c… Dr. (50000 shares @ $9 per share)

450000

Discount on issue of stock A/c… Dr.

50000

     To Common Stock A/c

500000

(Being 50000 shares issued @ $9)

11-15-17

Income statement A/c… Dr.

12500

    To Preferred Dividend Payable (25000*$25*4%/2)

12500

(Being the preferential dividend is declared)

12-1-17

Preferred Dividend Payable A/c … Dr.

12500

    To Cash/Bank A/c

12500

(Being the declared dividend is paid)

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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