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The answer to Stockholders equity transactions

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
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Total paid in capital 810,000

Retained earnings 440,000
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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

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

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