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Garcia Corporation recently hired a new accountant with extensive experience in accounting for
partnerships. Because of the pressure of the new job, the accountant was unable to review what he
had learned earlier about corporation accounting. During the first month, he made the following
entries for the corporations capital stock.
May 2
Cash
102,760
Capital Stock
102,760
(Issued 7,340 shares of $12 par value common stock at $14 per share)
10
Cash
798,050
Capital Stock
798,050
(Issued 14,510 shares of $18 par value preferred stock at $55 per
share)
15
Capital Stock
10,780
Cash
10,780
(Purchased 770 shares of common stock for the treasury at $14 per
share)
On the basis of the explanation for each entry, prepare the entries that should have been made for the
capital stock transactions. (Record entries in the order displayed in the problem statement.
Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Date
May 2
Common Stock
Paid-in Capital
May 10
Cash
Preferred Stoc
Paid-in Capital
May 15
Treasury Stoc
Cash
Debit
Credit
Question 2
On October 31, the stockholders equity section of Pele Companys balance sheet consists of common
stock $579,000 and retained earnings $432,200.
Pele is considering the following two courses of action:
(1) Declaring a 7% stock dividend on the 96,500 $6 par value shares outstanding
(2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share.
The current market price is $14 per share.
Prepare a tabular summary of the effects of the alternative actions on the companys stockholders
equity and outstanding shares.
Pele Companys
Balance Sheet
Before Action After Stock Dividend After Stock Split
Stockholders equity
Paid-in capital
Retained earnings
Outstanding shares
Question 3
Pringle Corporation has been authorized to issue 22,700 shares of $100 par value, 8%,
noncumulative preferred stock and 1,012,900 shares of no-par common stock.
The corporation assigned a $4 stated value to the common stock. At December 31, 2014, the
ledger contained the following balances pertaining to stockholders equity.
Preferred Stock
Paid-in Capital in Excess of Par ValuePreferred Stock
$162,400
21,170
Common Stock
2,120,000
1,581,000
28,620
Retained Earnings
82,200
The preferred stock was issued for $183,570 cash. All common stock issued was for cash. In
November 3,180 shares of common stock were purchased for the treasury at a per share cost of
$9. No dividends were declared in 2014.
Prepare the journal entries for the following. (Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
(1) Issuance of preferred stock for cash.
(2) Issuance of common stock for cash.
(3) Purchase of common treasury stock for cash.
No. Account Titles and Explanation
1.
Debit
Credit
Cash
Preferred Stoc
Paid-in Capital
2.
Cash
Common Stock
Paid-in Capital
3.
Treasury Stoc
Cash
:
$
Question 4
On January 1, 2014, Everett Corporation had these stockholders equity accounts.
Common Stock ($10 par value, 71,800 shares issued and outstanding)
$718,000
522,600
Retained Earnings
601,700
Declared a $0.60 cash dividend per share to stockholders of record on January 31,
payable February 15.
Feb. 15 Paid the dividend declared in January.
Apr. 15 Declared a 10% stock dividend to stockholders of record on April 30, distributable May
15. On April 15, the market price of the stock was $16 per share.
May 15 Issued the shares for the stock dividend.
Dec. 1 Declared a $0.50 per share cash dividend to stockholders of record on December 15,
payable January 10, 2015.
Dec. 31 Determined that net income for the year was $368,200.
Dividends Pay
Feb. 15
Dividends Pay
Cash
Apr. 15
Common Stock
Common Stock
Paid-in Capital
May 15
Common Stock
Common Stock
Dec. 1
Cash Dividend
Dividends Pay
Dec. 31
Income Summa
Debit
Credit
Retained Earn
Retained Earn
Stock Dividend
Retained Earnings
Cash Dividends
Stock Dividends