Foley Corporation has the following capital structure at the beginning of the ye
ID: 2423778 • Letter: F
Question
Foley Corporation has the following capital structure at the beginning of the year:
4% Preferred stock, $50 par value, 20,000 shares authorized,
6,000 shares issued and outstanding $ 300,000
Common stock, $10 par value, 60,000 shares authorized,
40,000 shares issued and outstanding 400,000
Paid-in capital in excess of par 110,000
Total paid-in capital 810,000
Retained earnings 440,000
Total stockholders' equity $1,250,000
Instructions
(a) Record the following transactions which occurred consecutively (show all calculations).
1. A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts.
2. A 15% common stock dividend was declared. The average fair value of the common stock is $22 a share.
Explanation / Answer
(1) A total cash dividend of $90,000 was declared and payable to stockholders of record. Record
dividends payable on common and preferred stock in separate accounts.
Retained Earnings................................... $90,000
Dividends Payable - Preference Shares............Cr.$12,000
Dividends Payable - Common Stock................Cr.$78,000
Calculations:
Out of $90000 dividend payable, $12000 is for the preference dividend being 4% of $300,000 and remaining is for common stock which is $78,000
(2) A 15% common stock dividend was declared. The average market value of the common stock is $22
a share.
Retained Earnings..............................Dr... $132,000
Common Stock to be distributed (at par)..........Cr.$60,000
Additional Paid in Capital from stock dividend....Cr.$72,000
Calculations:
15% common stock dividend was declared means 15% of 40000 shares which is 6000 common stock was declared as dividend at a prevailing market price of $22 out of which $10 is the par value and the remaining $12 is to be covered from additional paid in capital.