Monty Company reported the following amounts in the stockholders’ equity section

Question

Monty Company reported the following amounts in the stockholders’ equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000

Common stock, $5 par (94,000 shares authorized, 18,800 shares issued) 94,000

Additional paid-in capital 131,000 Retained earnings 478,000 Total $883,000

During 2017, Monty took part in the following transactions concerning stockholders’ equity.

1. Paid the annual 2016 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2016.

2. Purchased 1,500 shares of its own outstanding common stock for $43 per share. Monty uses the cost method.

3. Reissued 800 treasury shares for land valued at $36,200.

4. Issued 540 shares of preferred stock at $104 per share.

5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $41 per share.

6. Issued the stock dividend.

7. Declared the annual 2017 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018.

a. Prepare journal entries to record the transactions described above.

b. Prepare the December 31, 2017, stockholders’ equity section. Assume 2017 net income was $347,000.

Explanation / Answer

SOLUTION

1. Journal Entries-

* Retained earnings - 18,800 - 1,500 + 800 = 18,100* 10% = 1,810

S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Dividends Payable- Preferred (1,800 * $10) 18,000 Dividends Payable- Common (18,800 * $2) 37,600 Cash 55,600 2. Treasury Stock 64,500 Cash (1,500 * $43) 64,500 3. Land 36,200 Treasury Stock (800 * $43) 34,400   Paid-in Capital From Treasury Stock 1,800 4. Cash (540 * $104) 56,160 Preferred Stock (540 * $100) 54,000 Paid-in Capital in Excess of Par- Preferred 2,160 5. Retained Earnings* (1,810 * $41) 74,210 Common Stock Dividend Distributable (1,810 * $5) 9,050 Paid-in Capital in Excess of Par - Common 65,160 6. Common Stock Dividend Distributable 9,050 Common Stock 9,050 7. Retained Earnings 63,220   Dividends Payable- Preferred [(1,800+540)*$10] 23,400   Dividends Payable- Common [(18,100+1,810)*$2] 39,820

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