Instead of issuning bonds, we may issue 40,000 shares of $2 par value common sto
ID: 2416567 • Letter: I
Question
Instead of issuning bonds, we may issue 40,000 shares of $2 par value common stock for $23 per share and issue 10,000 shares of $40 par value,culmulative, perfered stock that pays dividents of 10% to build the new productuion. No dividend is paid in year one. but $100000 is dividends is distrubuted in year two
a. prepare journal entry to record tghe issurance of the common and preferred stock.
b Prepare journal entry for the decleration and Payment of of dividends in Year 1.
c. Prepare journal entry for the decleration and Payment of dividents in Year 2
d. Prepare journal entry for the decleration and payments of divident inn Year 2, if the preferred stock dividend was not cumulative.
Explanation / Answer
a.
Journal entry to record the issuance of the common and preferred stock
Date
Accounts Titles and Explanations
Debit
Credit
Cash (40000 Shares * $23)
$ 920,000
Common Stock (40000 Shares * $2)
$ 80,000
Paid in Capital in Excess of par - Common Stock = 920000-80000 =
$ 840,000
(Being common shares issued for cash)
Cash (10000 Shares * $40)
$ 400,000
Preferred Stock (10000 Shares * $40)
$ 400,000
(Being preference shares issued for cash)
b.
Journal entry for the declaration and Payment of dividends in Year 1
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31
Preferred Dividend (400000*10%)
$ 40,000
Preferred Dividend payable
$ 40,000
(Being Dividend on preferred stock recorded)
(There is no payment of dividend in year 1, hence no entry for payment)
c.
Journal entry for the declaration and Payment of dividends in Year 2
Date
Accounts Titles and Explanations
Debit
Credit
Preferred Dividend (400000*10%)
$ 40,000
Preferred Dividend payable
$ 40,000
Common Dividend (100000-40000-40000)
$ 20,000
Cash
$ 100,000
(Being dividend declared and paid)
d.
Journal entry for the declaration and Payment of dividends in Year 2
Date
Accounts Titles and Explanations
Debit
Credit
Preferred Dividend (400000*10%)
$ 40,000
Common Dividend (100000-40000)
$ 60,000
Cash
$ 100,000
(Being dividend declared and paid)
a.
Journal entry to record the issuance of the common and preferred stock
Date
Accounts Titles and Explanations
Debit
Credit
Cash (40000 Shares * $23)
$ 920,000
Common Stock (40000 Shares * $2)
$ 80,000
Paid in Capital in Excess of par - Common Stock = 920000-80000 =
$ 840,000
(Being common shares issued for cash)
Cash (10000 Shares * $40)
$ 400,000
Preferred Stock (10000 Shares * $40)
$ 400,000
(Being preference shares issued for cash)
b.
Journal entry for the declaration and Payment of dividends in Year 1
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31
Preferred Dividend (400000*10%)
$ 40,000
Preferred Dividend payable
$ 40,000
(Being Dividend on preferred stock recorded)
(There is no payment of dividend in year 1, hence no entry for payment)
c.
Journal entry for the declaration and Payment of dividends in Year 2
Date
Accounts Titles and Explanations
Debit
Credit
Preferred Dividend (400000*10%)
$ 40,000
Preferred Dividend payable
$ 40,000
Common Dividend (100000-40000-40000)
$ 20,000
Cash
$ 100,000
(Being dividend declared and paid)
d.
Journal entry for the declaration and Payment of dividends in Year 2
Date
Accounts Titles and Explanations
Debit
Credit
Preferred Dividend (400000*10%)
$ 40,000
Common Dividend (100000-40000)
$ 60,000
Cash
$ 100,000
(Being dividend declared and paid)