Mission Hills Company reported the following amounts in the stockholders’ equity
ID: 2451666 • Letter: M
Question
Mission Hills Company reported the following amounts in the stockholders’ equity of its December 31, 2015, balance sheet.
Preferred stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued
$200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issues
100,000
Additional paid-in capital
125,000
Retained earnings
450,000
Total
4875,000
During 2016, Mission Hills took part in the following transactions concerning stockholders’ equity.
Paid the annual 2015 $8 per share dividend on preferred stock and a $2 per share dividend on common stock.These dividends had been declared on December 31, 2015.
Purchased 2,700 shares of its own outstanding common stock for $40 per share.Mission Hills uses the cost method.
Reissued 700 treasury shares for land valued at $30,000.
Issued 500 shares of preferred stock at $105 per share.
Declared and issued a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
Declared the annual 2016 $8 per share on the preferred stock and $2 per share dividend on common stock.These dividends are payable in 2017.
Required:
Prepare journal entries to record the transactions described above.
Prepare the December 31, 2016, stockholders’ equity section.Assume 2016 net income was $330,000.
Preferred stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued
$200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issues
100,000
Additional paid-in capital
125,000
Retained earnings
450,000
Total
4875,000
Explanation / Answer
(‘1) Journal Entries
Sr No
Account Title and explanation
Debit
Credit
1
Dividend Payable
(2000 share x $8)
16,000
Dividend Payable
(20000 shares x $ 2)
40,000
Cash
56,000
To record the payment of dividend in the year 2016 which was declared on 31/12/2015
2
Treasury Stock
(2700 shares x $ 40)
108,000
Cash
108,000
To record the purchase of treasury stock.
3
Land
30,000
Treasury stock
(700 shares x $ 40)
28,000
Additional paid in capital
2,000
To record the resale of treasury stock.
4
Cash
(500 shares x $105)
52,500
Preferred Stock 8 %
(500 shares x $100)
50,000
Additional paid in capital
2,500
To record the issuance of preferred stock
5
Retained Earnings
(1800 shares x $ 45)
81,000
Common Stock
(1800 shares x $ 5)
9,000
Additional paid in capital
72,000
To record the declaration and issuance of stock dividend on common stock outstanding
6
Retained Earnings/ Dividend
59,600
Dividend Payable
(2500 shares x $ 8)
20,000
Dividend Payable
(19800 shares x $2)
39,600
To record the declaration of dividend for the year 2016.
(‘2) Stockholder Equity as on December 31,2016
Stockholder Equity
Amount
Preferred Stock 8% $ 100 par ( 10,000 shares authorised , 2500 shares issued )
250,000
Common Stock , $ 5 par ( 100,000 shares authorised, 21800 shares issued )
109,000
Additional Paid in capital
(125000+2000+2500+72000)
201,500
Retained Earnings
(450,000-81,000-59600+330,000)
639,400
Less : Treasury Stock ( 2000 shares )
(80,000)
Stockholders’ equity
1,119,900
Note- Total of stock holder’s equity as on 31/12/2015 is given in the question is wrong
Sr No
Account Title and explanation
Debit
Credit
1
Dividend Payable
(2000 share x $8)
16,000
Dividend Payable
(20000 shares x $ 2)
40,000
Cash
56,000
To record the payment of dividend in the year 2016 which was declared on 31/12/2015
2
Treasury Stock
(2700 shares x $ 40)
108,000
Cash
108,000
To record the purchase of treasury stock.
3
Land
30,000
Treasury stock
(700 shares x $ 40)
28,000
Additional paid in capital
2,000
To record the resale of treasury stock.
4
Cash
(500 shares x $105)
52,500
Preferred Stock 8 %
(500 shares x $100)
50,000
Additional paid in capital
2,500
To record the issuance of preferred stock
5
Retained Earnings
(1800 shares x $ 45)
81,000
Common Stock
(1800 shares x $ 5)
9,000
Additional paid in capital
72,000
To record the declaration and issuance of stock dividend on common stock outstanding
6
Retained Earnings/ Dividend
59,600
Dividend Payable
(2500 shares x $ 8)
20,000
Dividend Payable
(19800 shares x $2)
39,600
To record the declaration of dividend for the year 2016.