Incentive Corporation was organized as a corporation in 2008 to operate a financ
ID: 2345627 • Letter: I
Question
Incentive Corporation was organized as a corporation in 2008 to operate a financial consulting business. The charter authorized the following capital stock: common stock, par value $6 per share, 13,000 shares. During the first year, the following selected transactions were completed:a. Sold and issued 5,700 shares of common stock for cash at $20 per share.
b. Sold and issued 2,500 shares of common stock for cash at $22 per share.
1. Give the journal entry required for each of these transactions
2. At year-end, the Income Summary account reflected a profit of $11,600. Give the journal entry to close this account to Retained Earnings.
3. Prepare the Stockholders' Equity section as it should be reported on the 2008 year-end balance sheet.
4. Incentive Corporation has $31,600 cash in the company's bank account. What is the maximum amount of cash dividends the company can declare at this time?
Maximum amount ______________
Explanation / Answer
1a. XX-XX-X8 Cash Dr $114,000 Common Stock Cr 34,200 Paid in Capital in Excess of Par Cr $79,800 To record issuance of 5700 shares of $6 par value common stock at $20 per share 1b. XX-XX-X8 Cash Dr $55,000 Common Stock Cr 15,000 Paid in Capital in Excess of Par Cr $40,000 To record issuance of 2500 shares of $6 par value common stock at $22 per share 2. 12-31-X8 Income Summary Dr $11,600 Retained Earnings Cr $11,600 To close Income Summary to retained earnings 3. Stockholders’ equity: Common stock, $6 par value, 13,000 shares authorized, 8200 Shares issued & outstanding $49,200 Additional paid-in capital: Common stock n excess of par $119,800 Retained earnings, end of year $11,600 Total stockholders’ equity $180,600 4. Dividends are payments companies make to their stockholders. These must be made from earnings. Since we record accumulated earnings in the RE account, all dividends must come out of that account. There are several types of dividends, but they all must come from Retained Earnings. In order to pay dividends, the RE account MUST have a positive, or Credit, balance. SO Maximum amount of dividend that can be paid is $11,600