DQuestion 7 25 pt (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate

Question

DQuestion 7 25 pt (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the following capital stock: Preferred Stock: 796, par value $100 per share, 100,000 shares. Common Stock: $1 par value, 500,000 shares. The following transactions occurred during the year: 1/19/12 Issued 100,000 shares of common stock for $17 cash per share 1/31/12 - Issued 3,000 shares of preferred stock for $115 cash per share. 11/1/12- Repurchased 30,000 shares of common stock for $22 cash per share. ock purchased on 11/1, at $23 per share. 11/28/12 Resold the remaining 15,000 shares of common stock purchased on 11/1 at $4 per share. 12/1/12 Declared total dividend of common stock only for $95,000. Required 1. Prepare the journal entry for each transaction listed above. 2. In your own words, explain the main differences between common and preferred stock.

Explanation / Answer

1. JOURNAL ENTRIES FOR ABC INC

1/19/12 Bank A/c Dr $ 1700000

To Equity share capital a/c ( 100000 shares * $ 1 per share) $ 100000

To securities premium a/c ( 100000 shares * $ 16 per share) $ 1600000

( Being entry for issue of equity shares accounted )

1/31/12 Bank a/c Dr $ 345000

To Preference share capital ( 3000 shares * $ 100 per share) $ 300000

To Securities premium ( 3000 shares * $ 15 per share) $ 45000

  ( Being entry for issue of Preference shares accounted )

11/1/12 Treasury stock a/c Dr ( 30000shares * 22 per share ) $ 660000

To Bank $ 660000

( Being entry for shares repurchase )

11/20/12 Bank A/c Dr ( 15000 shares * 23 per share ) $ 345000

To Treasury stock ( 15000 shares * 22 per share ) $ 330000

To Retained earnings ( 15000 shares * 1 per share ) $ 15000

( Being shares resold accounted for )

11/28/12 Bank A/c Dr ( 15000 shares * 4 per share ) $ 60000

Retained Earnings A/c Dr ( 15000 shares * 18 per share ) $ 270000

To Treasury stock a/c Dr ( 15000 shares * 22 per share) $ 330000

( Being shares reissued )

12/1/12 Proposed dividend a/c Dr $ 95000

To Dividend Payable a/c $ 95000

( Being dividend declared )

2. Differences between common stock and preferred stock

Common stock is for Equity Shareholders

Preferred stock is for Preference shareholders.

Preference shareholders will be paid in full before making any payment to equity shareholders.

Ex: preference dividend

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