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ncentive Corporation was authorized to issue 12,000 shares of common stock, each

ID: 2571702 • Letter: N

Question

ncentive Corporation was authorized to issue 12,000 shares of common stock, each with a $2 par value. During its first year, the following selected transactions were completed:

Issued 5,100 shares of common stock for cash at $21 per share.

b. Issued 1,100 shares of common stock for cash at $24 per share.

Complete the table below, indicating the account, amount, and direction of the effect for the above transactions. (Enter any decreases to account balances with a minus sign.

Prepare the journal entry required for each of these transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1

Record the issuance of 5,100 shares of common stock with a par value $2 for a price of $21 per share.

2

Record the issuance of 1,100 shares of common stock with a par value $2 for a price of $24 per share

Prepare the stockholders’ equity section as it should be reported on the year-end balance sheet. At year-end, the accounts reflected Net income of $200.

+

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Incentive Corporation has $49,000 in the company’s bank account. What is the maximum amount of cash dividends the company can declare and distribute?

Maximum amount of cash dividends=

ncentive Corporation was authorized to issue 12,000 shares of common stock, each with a $2 par value. During its first year, the following selected transactions were completed:

Explanation / Answer

Answer

Assets

=

Liabilities

+

Stockholders’ Equity

Cash

Common Stock

Paid up capital in excess

a.

$107100

[5100 x $21]

=

+

$10200 [5100 x $2]

$96900 [5100 x $19]

b.

$26400

[1100 x $24]

=

+

$2200 [1100 x $2]

$24200 [1100 x $22]

General Journal

Dr

Cr

a.

Cash ($21)

$107100

Common Stock ($2)

$10200

Paid up capital in excess of Par ($19)

$96900

b.

Cash ($24)

$26400

Common Stock ($2)

$2200

Paid up capital in excess of Par ($22)

$24200

INCENTIVE CORPORATION

Balance Sheet (Partial)

At December 31

Stockholders’ Equity

Contributed Capital:

Common Stock (6200 shares at $2 par per share0

$12400

Paid in capital in excess of Par [96900 + 24200]

$121100

Total Contributed Capital

$133500

Retained Earnings:

Net Income

$200

Total Stockholders’ Equity

$133700

The Incentive Corporation has $49000 in bank account. However it can declare and distribute all of it as dividend. The Net Income earned by the corporation is $200 for the year.

Hence, the maximum cash dividend will be restricted to the maximum amount of $200

Assets

=

Liabilities

+

Stockholders’ Equity

Cash

Common Stock

Paid up capital in excess

a.

$107100

[5100 x $21]

=

+

$10200 [5100 x $2]

$96900 [5100 x $19]

b.

$26400

[1100 x $24]

=

+

$2200 [1100 x $2]

$24200 [1100 x $22]