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 par value
6/2/16. Issued 25,000 shares of preferred stock at a market price of $25. The divident is payable semiannulally 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 divident on the 4% preferred stock
12/31/16. Recorded a net loss of $29,000 for 2016

The following transactions occured 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 transactions
2. Prepare comparative stockholders' equity sections of the balance sheet for the years ending December 31,2016 and 2016 in good form
3. Calculate earnings-per-share for 2016 and 2017

Explanation / Answer

Question 1

Weighted average cost of treasury stock = ((12000 X 8) + (20000 X 10))/32000 = $9.25 per share.

Transactions in 2017:

Dividends on preferred stock = 4% X 25 X 25000 X 6/12 = $500

Dividends on Common Stock = 0.96 X (120,000 - 32,000 + 22,000) = $105,600

Dividend Payable already includes $12,500 from the previous year, which was not paid in the previous cycle. Hence the total dividend to be paid is 118,100 + 12,500 = 130,600

New stock issued as stock dividend = 120,000 X 5% X 10 / 10 = 6,000 Shares at $10 per share.

Question 2

Question 3

Earnings per Share for a Common stock in 2016 = (-29000 - 12500(Preference Dividend)) /88000 = -0.471

Earnings per Share for a Common stock in 2016 = (23500 - 25000(Preference Dividend)) /120000 = -0.0125

Date Transactions in 2017 Debit Credit 20-Jan-17 Cash         2,64,000 Additional Paid up Capital          60,500 Treasury Stock (9.25 X 22000 Shares)       2,03,500

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