Hatch Company has two classes of capital stock outstanding: 7%, $20 par preferre

Question

Hatch Company has two classes of capital stock outstanding: 7%, $20 par preferred and $5 par common. At December 31, 2014, the following accounts were included in stockholders’ equity. Preferred Stock, 152,300 shares $ 3,046,000 Common Stock, 2,127,000 shares 10,635,000 Paid-in Capital in Excess of Par—Preferred Stock 209,700 Paid-in Capital in Excess of Par—Common Stock 27,420,000 Retained Earnings 4,544,000 The following transactions affected stockholders’ equity during 2015. Jan. 1 39,900 shares of preferred stock issued at $23 per share. Feb. 1 53,400 shares of common stock issued at $21 per share. June 1 2-for-1 stock split (par value reduced to $2.50). July 1 32,000 shares of common treasury stock purchased at $10 per share. Hatch uses the cost method. Sept. 15 10,200 shares of treasury stock reissued at $12 per share. Dec. 31 The preferred dividend is declared, and a common dividend of 55¢ per share is declared. Dec. 31 Net income is $2,182,000.

Explanation / Answer

Journal entries:

Working note:

Note:For stock split, no journal entry is required as there will be no change in the total value but only the number of shares will increase and per share will decrease keeping the total value same. Only memorandum entry is prepared.

The common stock's dividend per share is confusing with another symbol whether is $5 per share or $0.5 per share, so it is assumed as $0.5 per share is decalred as dividend for common stock.

Note: Since there is no question asked in this post, it is assumed that journal entries are required to record the transactions occurred during 2015.

Date Accounts and explanations Debit ($) Credit ($) Jan. 1, 2015 Cash (39,900*$23 per share) 917,700    7% Preferred stock (39,900 shares * $20 per share) 798,000     Paid-in capital in excess of par - Preferred stock (39,900 shares * $3 per share) ($23 - $20) 119,700 (To record the issue of preferred shares with premium for cash) Feb. 1, 2015 Cash (53,400*$21 per share) 1,121,400     Common stock (53,400 shares * $5 per share) 267,000     Paid-in capital in excess of par - Common stock (53,400 shares * $16 per share) ($21 - $5) 854,400 (To record the issue of preferred shares with premium for cash) June. 1, 2015 Common stock (2,127,000 shares + 53,400 shares = 2,180,400)*$5 per share 10,902,000    Common stock (2,180,400 shares * 2 * $2.5 per share) 10,902,000 (To record stock split of 2 shares issued for every one share held) July. 1, 2015 Treasury stock (32,000 shares * $10 per share) 320,000     Cash 320,000 (To record the purchase of treasury stock by cash) Sept. 15, 2015 Cash 122,400    Treasury stock (10,200 shares * $10 per share) 102,000    Paid-in capital in excess of par - Treasury stock (10,200 shares * $2 per share) ($12 - $10) 20,400 Dec. 31, 2015 Income summary (Net income) 2,182,000    Retained earnings 2,182,000 (To record the net income at the end of the year) Dec. 31, 2015 Retained earnings 1,348,380    Preferred dividends ($3,046,000 + $798,000)*7/100) 269,080    Common dividend (see note) (2,158,600*$0.5 per share) 1079300 (To record the declaration of dividends)

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