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# Journal entries for preferred and common stocks

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

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

#### Solution Preview

a. Prepare journal entries for the following
1. The issuance of common stock and preferred stock on January 1, 2003.

Common Stock - The amount received is 700,000X25 = 17,500,000. The common stock account for par value is 700,000X6=4,200,000. The paid in capital in excess of par is 700,000 X (25-6) = 13,300,000
Preferred Stock - The amount received is 120,000X100= ...

#### Solution Summary

The solution provides journal entries for common and preferred stock relating to issuance, declaration and payment of dividends. It also explains how to divide the total dividend into preferred and common stock.

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