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    Common Stock and Dividends Payable

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    Can you determine the amounts of the transactions on 7/21;8/15; 12/4 and 12/24.

    I have tried these problems but keep getting the amounts incorrect.

    Mindy Feldkamp and her two colleagues, Oscar Lopez and Lori Melton, are personal trainers at an upscale health spa/resort in Tampa, Florida. They want to start a health club that specializes in health plans for people in the 50 age range. The growing population in this age range and strong consumer interest in the health benefits of physical activity have convinced them they can profitably operate their own club. In addition to many other decisions, they need to determine what type of business organization they want. Oscar believes there are more advantages to the corporate form than a partnership, but he hasn't yet convinced Mindy and Lori. They have come to you, a small business consulting specialist, seeking information and advice regarding the choice of starting a partnership versus a corporation.

    After deciding to incorporate, each of the thee investors recieves 20,000 shares of $2 par common stock on June 12,2007 in exchange for their co-owned building (200,000 market value) and 100,000 cash they contributed to the business.


    During the discussion about financing, Lori mentions that one of her clients, Roberto Marino, has approached her about buying a significant interest in the new club. Having an interested investor sways the three to issue equity securities to provide the financing they need. On July 21, 2007,Mr. Marino buys 90,000 shares at a price of $10 per share.
    The club, LifePath Fitness, opens on January 12, 2008, and after a slow start, begins to produce the revenue desired by the owners. The owners decide to pay themselves a stock dividend, since cash has been less than abundant since they opened their doors. The 10% stock dividend is declared by the owners on July 27, 2008. The market value of the stock is $3 on the declaration date. The date of record is July 31, 2008 (there have been no changes in stock ownership since the initial issuance), and the issue date is August 15, 2008. By the middle of the fourth quarter of 2008, the cash flow of LifePath Fitness has improved to the point that the owners feel ready to pay themselves a cash dividend. They declare a $0.05 cash dividend on December 4, 2008. The record date is December 14, 2008, and the payment date is December 24, 2008.
    Record all of the transactions related to the common stock of LifePath Fitness during the years 2007 and 2008.
    (List multiple entries in order of magnitude. If no entry is required, enter No entry for the account and 0 for the amount.)
    General Journal
    Date Description Debit Credit
    6/12/07 Building 200,000
    Cash 100,000
    Paid-capital in excess of par value 180,000
    Common stock 120,000

    7/21/07 Cash 900,000
    Paid-capital in excess of par value 720,000
    Common stock 180,000

    7/21/08 Retained earnings
    Common stock dividend distributable
    Paid-capital in excess of par value

    7/31/08 No entry
    No entry


    12/4/08 Retained earnings
    Dividends payable

    12/14/08 No entry 0
    No entry 0

    12/24/08 Dividends payable

    Indicate how many shares are issued and outstanding after the stock dividend is issued.
    Number of shares issued
    Number of shares outstanding

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    Solution Preview

    Total shares outstanding are 60,000+90,000=150,000. A 10% stock dividend is declared. Number of shares to be issued = 150,000X10%=15,000. Market price is $3. Amount transferred from retained earnings = 15,000X3=45,000.

    7/21/08 Retained earnings Dr 45,000
    Common stock dividend ...

    Solution Summary

    The solution explains some questions relating to common stock and dividends payable