Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01

Question

Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common. As of the beginning of 2018, 410 shares of preferred stock and 5,100 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2018:

March 1 Issues 2,200 shares of common stock for $53 per share.

May 15 Purchase 510 shares of treasury stock for $46 per share.

July 10 Reissues 310 shares of treasury stock purchased on May 15 for $51 per share.

October 15 Issues 310 shares of preferred stock for $56 per share.

December 1 Declare a cash dividend on both common and preferred stock of $1.60 per share to all stockholders of record on December 15. (Hint: Dividends are not paid on treasury stock.)

December 31 Pay the cash dividends declared on December 1.

Donnie Hilfiger has the following beginning balances in its stockholders’ equity accounts on January 1, 2018: Preferred Stock, $410; Common Stock, $51; Additional Paid-in Capital, $81,500; and Retained Earnings, $32,700. Net income for the year ended December 31, 2018, is $13,000.

Required:

1. Record each of these transactions.

Explanation / Answer

ans)

1. Mar 1 Cash (2200 X 53) 116600

Common stock ( 2200 X 0.01) 22

  Paid-in Capital in Excess of Par Value 116578

2. May 15 Treasury stock ( 510 X 46) 23460

Cash 23460

3. July 10 Cash ( 310 X 51) 15810

Common treasury stock (310 X 46) 14260

  Paid-in Capital on Sale of Treasury Stock 1550

4. Oct 15 Cash (310 X 56) 17360

Preferred stock (310 X 1) 310

Paid-in Capital in Excess of Par Value--Preferred 17050

5. Dec 1 Retained earnings 12512

Dividends payable 12512

410 + 310 = 720 preferred stock outstanding

5100 + 2200 - 510 + 310 = 7100 shares of common stock outstanding

(720 + 7100 ) X 1.60 = 12512 total dividends

Dec 31 Dividends payable 12512

cash 12512

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