Complete the following problem. It brings together several different stockholder
ID: 2454687 • Letter: C
Question
Complete the following problem. It brings together several different stockholders' equity transactions. Post your solution to part (b) only. On January 5, 2010, Phelps Corporation received a charter granting the right to issue 5,000 shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of $10 par value common stock. It then completed these transactions: Jan. 11 - Issued 20,000 shares of common stock at $16 per share Feb. 1 - Issued to Sanchez Corp. 4,000 shares of preferred stock for the following assets: machinery with a fair market value of $50,000; a factory building with a fair market value of $160,000; and land with an appraised value of $270,000. July 29 - Purchased 1,800 share of common stock at $17 per shared. (Use cost method.) Aug. 10 - Sold the 1,800 treasury shares at $14 per share. Dec. 31 - Declared a $0.25 per share cash dividend on the common stock and declared the preferred dividend. Dec. 31 - Closed the Income Summary account. There was a $175,000 net income. Instructions: Record the journal entries for the transactions listed above. Prepare the stockholders' equity section of Phelps Corporation's balance sheet as of December 31, 2010.
Explanation / Answer
January 11
Cash (20,000 X $16)........................................................................... 320,000
Common Stock (20,000 X $10) .............................................. 200,000
Paid-in Capital in Excess of Par—Common........................ 120,000
February 1
Machinery.......................................................................................... 50,000
Factory Building................................................................................ 160,000
Land ...................................................................................... 270,000
Preferred Stock (4,000 X $100).............................................. 400,000
Paid-in Capital in Excess of Par—Preferred....................... 80,000
July 29
Treasury Stock (1,800 X $17)........................................................... 30,600
Cash.......................................................................................... 30,600
August 10
Cash (1,800 X $14)............................................................................. 25,200
Retained Earnings (1,800 X $3)....................................................... 5,400*
Treasury Stock........................................................................ 30,600
*(The debit is made to Retained Earnings because no Paid-in Capital *from Treasury Stock exists.)
December 31
Retained Earnings............................................................................. 37,000
Cash Dividend Payable—Common....................................... 5,000*
Cash Dividend Payable—Preferred...................................... 32,000**
*Common Stock Cash Dividend:
Common shares outstanding 20,000
Common cash dividend X $.25
$5,000
**(4,000 X 100 X 8%)
December 31
Income Summary.............................................................................. 175,700
Retained Earnings................................................................... 175,700
(b) PHELPS CORPORATION
Stockholders’ Equity
December 31, 2010
Capital stock
Preferred stock—par value $100 per share,
8% cumulative and nonparticipating,
5,000 shares authorized,
4,000 shares issued and outstanding............................................................... $400,000
Common stock—par value $10 per share,
50,000 shares authorized,
20,000 shares issued and outstanding............................................................. 200,000
Total capital stock........................................................................................ 600,000
Additional paid-in capital
Paid-in capital in excess of par—preferred................................. $ 80,000
Paid-in capital in excess of par—common................................... 120,000 200,000
Total paid-in capital........................................................................... 800,000
Retained earnings 133,300*
Total stockholders’ equity................................................................. $933,300
*($175,700 – $5,400 – $37,000)