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The answer to Stockholders equity transactions

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Sands Corporation has the following capital structure at the beginning of the year:

6% preferred stock, $50 par value, $300,000
20,000 shares authorized, 6,000 shares issues and outstanding

Common stock $10 par value 60,000 shares authorized $400,000
40,000 shares issued and outstanding

Paid in capital in excess of par $110,000
---------------
Total paid in capital 810,000

Retained earnings 440,000
-------------
Total Stockholder equity 1,250,000

Instructions

a) Record the following transactions which occurred consecutively (show all calculations)

1) A total cash dividend of 90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts

2) A 10% common stock dividend was declared. The average market value of the common stock is $18 a share

3) Assume that net income for the year was $150,000 (record the closing entry) and the board of directories appropriated $70,000 of retained earnings to plant expansion

b) Construct the stockholders equity section incorporating all the above information

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Solution Preview

1) A total cash dividend of 90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts

The dividend amount for preferred stock will be 300,000X6%= 18,000. The dividend for common stock is 90,000-18,000=72,000. The entry is
Retained Earnings Dr 90,000
Dividends Payable - Preferred Cr 18,000
Dividends Payable - Common Cr 72,000

2) A 10% common stock dividend was declared. The average market value of the common stock is $18 a share

The total shares of common stock issued are 40,000. A 10% stock dividend would mean 4,000 shares will be issued. Total value is ...

Solution Summary

The solution explains how to record stockholders equity transactions and prepare a stockholders equity section of the balance sheet

$2.19
Similar Posting

Multiple Choice, financial statements for Rustic Camp Sites, and Donna Bruck, MD

Part I Multiple Choice (worth 1 point each for total of 5 points)
(clearly identify the correct letter)

1. Borrowing money is an example of a(n)
answer_________
a. delivering activity.
b. financing activity.
c. investing activity.
d. operating activity.

2. . Issuing shares of stock in exchange for cash is an example of a(n)
answer _________
a. delivering activity.
b. investing activity.
c. financing activity.
d. operating activity.

3. State the Accounting Equation:
answer _________
a. Assets + Liabilities = Equity
b. Assets + Equity = Liabilities
c. Assets = Liabilities - Equity
d. Assets = Liabilities + Equity

4. Bulldog Company purchased land for $50,000 cash. A financial statement impact of this transaction is:
answer _________
a. Assets decreased
b. Equity increased
c. Cash decreased
d. Liabilities increased

5. Maroon Company borrowed $100,000 from First Bank. A financial statement impact of this transaction is:
answer _________
a. Assets decreased
b. Equity increased
c. Cash decreased
d. Liabilities increased

Part II Exercise Transactions Analysis (worth 5 points)
During 2005 Rustic Camp Sites experienced the following transactions.
1. RCS acquired $32,000 cash by issuing common stock.
2. RCS received $116,000 cash for providing services to customers (leasing camp sites).
3. RCS paid $13,000 cash for salaries expenses.
4. RCS paid a $9,000 cash dividend to the owners.
5. RCS sold land that had cost $100,000 for $100,000 cash.
6. RCS paid $47,000 cash for other operating expenses.
Required
a. For each transaction above explain which accounts are impacted (increase or decrease) and classify the impact it will have on the Balance Sheet and Income Statement (such as Asset, Liability, Equity, Revenue, Expense). If there is no impact, then state as such. (worth 3 points)
The first transaction has been completed as an example below
Transaction # Identify Accounts Increased Identify Accounts Decreased Classify All Types of Balance Sheet Accounts Impacted (Asset, Liability or No impact) Classify All Types of Income Statement Accounts Affected (Revenue, Expense or No Impact)
1 Cash increase, and Common Stock increase N/A Assets increase for Cash and Equity increases for Common Stock No impact
2
3
4
5
6

b. What amount of net income will RCS report on the 2005 income statement? Show your calculation for revenue and operating expenses . (worth 2 points)

Part III Problem Preparing Financial Statements (worth 5 points)
The Income and Statement and Balance Sheet are worth 2 points each and the Retained Earnings Statement is worth 1 point. Make sure you complete all 3 financial statements as noted.

Prepare an income statement, a retained earnings statement, and a balance sheet for the medical practice of Donna Bruck, MD, from the items listed below for the month of October 2007.

Retained earnings (October 1) $15,000
Common stock 30,000
Accounts payable 6,000
Equipment 32,000
Service revenue 26,000
Dividends 6,000
Dental supplies expense 3,500
Cash 13,000
Utilities expense 700
Dental supplies 2,800
Salaries expense 7,000
Accounts receivable 10,000
Rent expense 2,000

DONNA BRUCK, MD
Income Statement
For the Month Ended October 31, 2007

Revenues $

Expenses $

Total expenses

Net income $ t

DONNA BRUCK, MD
Retained Earnings Statement
For the Month Ended October 31, 2007

Retained Earnings, October 1 $
Add:

Less:

$ t

DONNA BRUCK, MD
Balance Sheet
October 31, 2007

Assets
$

Total assets
$ t

Liabilities and Stockholders' Equity
Liabilities
$
Stockholders' Equity
$

Total liabilities and stockholders' equity $ t

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