Flameco Corp., Sammy Co., Branco, Inc.

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Common and preferred stock?issuances and dividends. Flameco Corp. was incorporated
on January 1, 2003, and issued the following stock, for cash:

1 1,500,000 shares of $6 par per share common stock were authorized;
700,000 shares were issued on January 1, 2003, at
$25 per share.
2 250,000 shares of $ 60 par value, 8.00% cumulative, preferred stock were authorized,
120,000 shares were issued on January 1, 2003, at $100 per share

3 Net income for the years ended December 31, 2003, 2004, and 2005, was
$4,250,000 , $5,500,000 , and $6,500,000 , respectively.

4 No dividends were declared or paid during 2003 or 2004. However, on
December 1, 2005, the board of directors of Flameco Corp. declared dividends of
$4,000,000 , payable on January 31, 2006, to holders of record as of January 4, 2006

Required:
a. Prepare journal entries for the following
1. The issuance of common stock and preferred stock on January 1, 2003.
2. The declaration of dividends on December 1, 2005.
3. The payment of dividends on January 31, 2006.
b. Of the total amount of dividends declared during 2005, how much will be
received by preferred shareholders?

a. Journal Entries

Jan. 1, 2003 Cash 17,500,000
Common Stock 4,200,000
(700,000 shares x $6/share)
Additional paid-in capital in excess of par value 13,300,000
(700,000 shares x ($25/share - $6/share))

We debit the cash account, which shows the amount company received by
multiplying the number of common stock issued with the price per share.
Then, when the common stock is sold for more than its par value, the amount
received in excess of the par value is recorded as "additional paid-in capital."
So, we calculate the excess amount with the shares issued.

Jan. 1, 2003 Cash 12,000,000
Preferred Stock 7,200,000
(120,000 shares x $60/share)
Additional paid-in capital in excess of par value 4,800,000
(120,000 shares x ($100/share - $60/share))

We debit the cash account, which shows the amount company received by
multiplying the number of preferred stock issued with the price per share.
Then, when the preferred stock is sold for more than its par value, the amount
received in excess of the par value is recorded as "additional paid-in capital."
So, we calculate the excess amount with the shares issued.

Dec. 1, 2005 Preferred dividends 1,728,000
Common dividends 2,272,000
Dividends payable 4,000,000

When preferred stock is cumulative, it provides that if all or part of the required
dividend on preferred stock is not paid during a given year, the unpaid dividend
accumulates and carries forward to succeeding years. So, we need to calculate
the dividend for preferred stock by multiplying the par value with the dividend
percentage. The accumulated amount of unpaid dividends as well as current ...