E15-18 (Dividends and Stockholders’ Equity Section) Anne ...



E15-18 (Dividends and Stockholders’ Equity Section) Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2006, balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000 Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000 Additional paid-in capital 125,000 Retained earnings 450,000 Total $875,000 (L0 4, 7, 8) (L0 6, 7, 8) During 2007, Cleves took part in the following transactions concerning stockholders’ equity. 1. Paid the annual 2006 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2006. 2. Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method. 3. Reissued 700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $105 per share. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual 2007 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2008. Instructions (a) Prepare journal entries to record the transactions described above. (b) Prepare the December 31, 2007, stockholders’ equity section. Assume 2007 net income was $330,000.

|(a) |1. |Dividends Payable—Preferred (2,000 X $10) |20,000 | |

| | |Dividends Payable—Common (20,000 X $2) |40,000 | |

| | | Cash | |60,000 |

| | | | | |

| |2. |Treasury Stock |68,000 | |

| | | Cash (1,700 X $40) | |68,000 |

| | | | | |

| |3. |Land |30,000 | |

| | | Treasury Stock (700 X $40) | |28,000 |

| | | Paid-in Capital From Treasury Stock | |2,000 |

| |4. |Cash (500 X $105) |52,500 | |

| | | Preferred Stock (500 X $100) | |50,000 |

| | | Paid-in Capital in Excess of Par— | | |

| | | Preferred | |2,500 |

| | | | | |

| |5. |Retained Earnings (1,900* X $45) |85,500 | |

| | | Common Stock Dividend Distributable | | |

| | | (1,900 X $5) | |9,500 |

| | | Paid-in Capital in Excess of Par— | | |

| | | Common | |76,000 |

| | |*(20,000 – 1,700 + 700 = 19,000; 19,000 X 10%) | | |

| |6. |Common Stock Dividend Distributable |9,500 | |

| | | Common Stock | |9,500 |

| | | | | |

| |7. |Retained Earnings |66,800 | |

| | | Dividends Payable—Preferred | | |

| | | (2,500 X $10) | |25,000 |

| | | Dividends Payable—Common | | |

| | | (20,900* X $2) | |41,800 |

| | |*(19,000 + 1,900) | | |

| |

|(b) Anne Cleves Company |

|Stockholders’ Equity |

|December 31, 2007 |

|Capital stock | | |

| Preferred stock, 10%, $100 par, 10,000 shares | | |

| authorized, 2,500 shares issued and | | |

| outstanding | |$250,000 |

| Common stock, $5 par, 100,000 shares | | |

| authorized, 21,900 shares issued, 20,900 | | |

| shares outstanding | | 109,500 |

| Total capital stock | |359,500 |

| Additional paid-in capital | | 205,500 |

| Total paid-in capital | |565,000 |

|Retained earnings | | 627,700 |

|Total paid-in capital and retained earnings | |1,192,700 |

|Less: Cost of treasury stock (1,000 shares common) | | 40,000 |

|Total stockholders’ equity | |$1,152,700 |

Computations:

Preferred stock $200,000 + $50,000 = $250,000

Common stock $100,000 + $ 9,500 = $109,500

Additional paid-in capital: $125,000 + $2,000 + $2,500 + $76,000 = $205,500

Retained earnings: $450,000 – $85,500 – $66,800 + $330,000 = $627,700

Treasury stock $68,000 – $28,000 = $40,000

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