Share
Explore BrainMass

Dividends and Stockholders' Equity

(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

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

Attachments

Solution Preview

(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 ...

Solution Summary

The solution explains the journal entries and the preparation of the stockholders equity section.

$2.19