Pearson began 20XX with 30,000 $1 common shares issued and outstanding. Paid in capital in excess of par was $25,000 and retained earnings were $75,000. Net income for 20XXwas $22,000.
Requirements:
Review Pearson's transactions for 20XX in the Excel Template below, then:
1.Record the transactions in the journal.
2.Prepare the statement of shareholders' equity for 20XX
ssued 10,000 shares $1 par common stock for $10 per share
Declared a cash dividend on 5,000 shares of 5% $4 par preferred stock and a $.20 per share dividend on 40,000 shares of common stock outstanding.
Paid the cash dividend
Declared a 2-for-1 stock split by calling in the 40,000 shares of $1 par common stock and issuing new stock in its place
Declared and distributed a 10% stock dividend on the common stock when the market value was $12 per share
Purchased 1,000 shares of common stock for the treasury for $13 per share
Sold 500 treasury shares for $15 per share
To record the transactions in the journal, we need to follow these steps:
1. Issued 10,000 shares $1 par common stock for $10 per share:
Debit Cash for $100,000 (10,000 shares x $10)
Credit Common Stock for $10,000 (10,000 shares x $1)
Credit Paid-in Capital in Excess of Par for $90,000 ($100,000 - $10,000)
2. Declared a cash dividend on 5,000 shares of 5% $4 par preferred stock and a $0.20 per share dividend on 40,000 shares of common stock outstanding:
Debit Dividends Payable for $2,000 ($0.20 x 40,000)
Credit Dividends Payable for $1,000 ($4 x 5,000) (for preferred stock dividend)
3. Paid the cash dividend:
Debit Dividends Payable for $3,000 ($2,000 + $1,000)
Credit Cash for $3,000
4. Declared a 2-for-1 stock split by calling in the 40,000 shares of $1 par common stock and issuing new stock in its place:
No journal entry is needed for a stock split as no change in equity occurred.
5. Declared and distributed a 10% stock dividend on the common stock when the market value was $12 per share:
Debit Retained Earnings for $4,800 (40,000 shares x 10% x $12)
Credit Common Stock Dividends Distributable for $4,800 (40,000 shares x 10% x $1)
6. Purchased 1,000 shares of common stock for the treasury for $13 per share:
Debit Treasury Stock for $13,000 (1,000 shares x $13)
Credit Cash for $13,000
7. Sold 500 treasury shares for $15 per share:
Debit Cash for $7,500 (500 shares x $15)
Credit Treasury Stock for $6,500 (500 shares x $13)
Credit Paid-in Capital from Treasury Stock for $1,000 ($15 - $13 = $2 x 500 shares)
To prepare the statement of shareholders' equity for 20XX, we need to follow these steps:
1. Begin with the beginning balances:
Common Stock: $30,000 (30,000 shares x $1 par)
Paid-in Capital in Excess of Par: $25,000
Retained Earnings: $75,000
2. Add the net income for 20XX:
Net Income: $22,000
3. Deduct the cash dividend paid:
Dividends: $3,000
4. Deduct the amount of common stock dividend distributed:
Common Stock Dividends Distributable: $4,800
5. Add the treasury stock transactions:
Treasury Stock: $6,500
6. Sum up the totals:
Common Stock: $40,000 ($30,000 + $10,000)
Paid-in Capital in Excess of Par: $115,000 ($25,000 + $90,000)
Retained Earnings: $94,200 ($75,000 + $22,000 - $3,000 - $4,800)
Total Shareholders' Equity: $249,200 ($40,000 + $115,000 + $94,200)
This completes the preparation of the statement of shareholders' equity for 20XX.