Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01
ID: 2582687 • Letter: D
Question
Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common. As of the beginning of 2018, 440 shares of preferred stock and 5,400 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2018:
March 1 Issues 2,500 shares of common stock for $56 per share.
May 15 Purchase 540 shares of treasury stock for $49 per share.
July 10 Reissues 340 shares of treasury stock purchased on May 15 for $54 per share.
October 15 Issues 340 shares of preferred stock for $59 per share.
December 1 Declare a cash dividend on both common and preferred stock of $1.90 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, $440; Common Stock, $54; Additional Paid-in Capital, $83,000; and Retained Earnings, $33,300. Net income for the year ended December 31, 2018, is $13,600.
Explanation / Answer
Journal Entries in the books of Donnie Hilfiger
Notes:
Dividends: Preferred stock _ 440 shares beginning +340 shares issued during the year= 780 shares
Common stock_ 5400 shares beginning + 2500 issued on March 1 - repurchased 540 shares on May 15 + reissue 340 shares on July 10 = 7700 shares.
Total shares outstanding =7700 shares+780 shares = 8480 shares.
Dividend = $1.9*8480 shares = $16112.
The balance of retained earnings is $33300. Hence dividend of $16112 can be declared out of it.
Date Particulars Debit$ Credit$ Mar 1 Cash A/c ($56*2500) 140000 To Common stock a/c (par value$0.01*2500) 25 To Additional paid in capital 139975 (Being 2500 common stock $0.01 par value shares issued for $56) May 15 Treasury stock a/c 26460 To cash a/c 26460 (Being 540 treasury stock shares purchased at $49) July 10 Cash a/c(340*$54) 18360 To treasury stock a/c(340*$49) 16660 To paid in capital on sale of treasury stock(340*$5) 1700 (being reissue of 340 shares of treasury stock at $54 purchased on may 15) Oct 15 Cash a/c(340 * $59) 20060 To preferred stock(340*$1 par value) 340 To paid in capital in excess of par value -preferred(340*$58 par value) 19720 (Being 340 preferred stock shares of par value $1 issued at $59) Dec 1 Retained earnings a/c 16112 To Dividends payable a/c 16112 (being dividends declared on 8480 shares @ $1.9 per share out of retained earnings) Dec 31 Dividends payable a/c 16112 To cash a/c 16112 (Being dividends declared paid off)Related Questions
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