Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. N
ID: 2591452 • Letter: T
Question
Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow another million dollars, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has two classes of stock authorized: 796, $10 par preferred, and $1 par value common. When the company began on July 1, 2018, Tony and Suzie each purchased 15,000 shares of $1 par value common stock at $1 per share. The following transactions affect stockholders' equity during 2020, its third year of operations: July 2 Issue an additional 100,000 shares of common stock for $14 per share. September 10 Repurchase 10,000 shares of its own common stock (i.e., treasury stock) for $17 per share November 15 Relssue 5,000 shares of treasury stock at $18 per share. December 1 Declare a cash dividend on its common stock of $125,000 ($1 per share) to all stockholders of record on December 15 December 31 Pay the cash dividend declared on December 1Explanation / Answer
Answer
Date
(In 2020)
Particulars
Dr.(In $)
Cr.(In $)
July 2
Bank (100,000*14)
1,400,000
Common Stock (100,000*1)
100,000
Additional paid in capital (10,000*13)
1,300,000
(Being 100,000 shares issued at $14persahre)
Sept. 10
Treasury Stock (10,000*17)
170,000
Bank (10,000*17)
170,000
(Being treasury stock purchased)
Nov. 15
Bank (5,000*18)
90,000
Treasury Stock (5,000*17)
85,000
Additional paid in capital (5,000*1)
5,000
(being 5000 treasury stock reissued @18 per stock)
Dec. 1
Retained Earnings (125,000 shares@$1)
125,000
Dividend payable
125,000
(Being dividend @$1 per share declared)
Dec 31
Dividend payable
125,000
Bank
125,000
(being dividend declared now paid)
2.
(In $)
Stockholder’s Equity
Common Stock(125000 * $1 per share)
125,000
Retain earnings(142,000 + 152,000 – 125,000)
169,000
Additional paid in capital(1,300,000+ 5,000)
1,305,000
Total paid in capital
1,599,000
Treasury Stock (5000*17)
(85,000)
Total Stockholder’s equity
1,514,000
Date
(In 2020)
Particulars
Dr.(In $)
Cr.(In $)
July 2
Bank (100,000*14)
1,400,000
Common Stock (100,000*1)
100,000
Additional paid in capital (10,000*13)
1,300,000
(Being 100,000 shares issued at $14persahre)
Sept. 10
Treasury Stock (10,000*17)
170,000
Bank (10,000*17)
170,000
(Being treasury stock purchased)
Nov. 15
Bank (5,000*18)
90,000
Treasury Stock (5,000*17)
85,000
Additional paid in capital (5,000*1)
5,000
(being 5000 treasury stock reissued @18 per stock)
Dec. 1
Retained Earnings (125,000 shares@$1)
125,000
Dividend payable
125,000
(Being dividend @$1 per share declared)
Dec 31
Dividend payable
125,000
Bank
125,000
(being dividend declared now paid)