The following selected accounts appear in the ledger of Patton Environmental Inc
ID: 2652609 • Letter: T
Question
The following selected accounts appear in the ledger of Patton Environmental Inc. on July 1, 2014, the beginning of the current fiscal year:
During the year, the corporation completed a number of transactions affecting the stockholders' equity. They are summarized as follows:
Issued 70,000 shares of common stock at $18, receiving cash.
Issued 23,000 shares of preferred 2% stock at $120.
Purchased 42,000 shares of treasury common for $714,000.
Sold 21,000 shares of treasury common for $420,000.
Sold 14,000 shares of treasury common for $210,000.
Declared cash dividends of $2.00 per share on preferred stock and $0.04 per share on common stock.
Paid the cash dividends.
Journalize the entries to record the transactions.
For a compound transaction, if an amount box does not require an entry, leave it blank.
Preferred 2% Stock, $100 par (90,000 shares authorized, 45,000 shares issued) $4,500,000 Paid-In Capital in Excess of Par—Preferred Stock 540,000 Common Stock, $15 par (700,000 shares authorized,190,000 shares issued) 2,850,000 Paid-In Capital in Excess of Par—Common Stock 370,000 Retained Earnings 17,511,000
Explanation / Answer
Issue of common stock:
Cash (Debit) $1,260,000 (70,000 shares *$18)
Common stock (credit) $1,050,000 (70,000 shares *15)
Paid in capital in excess of par - common stock (credit) $210,000 (70,000 shares *3)
Issue of preference stock:
Cash (Debit) $2,760,000 (23,000 shares *$120)
Preferred stock (credit) $2,300,000 (23,000 shares *$100)
Paid in capital in excess of par - preferred stock (credit) $460,000 (23,000 shares*$20)
Purchase of treasury stock: (using the cost method)
Treasury stock (debit) $714,000
Cash (credit) $714,000
Sale of 21,000 sahers of treasury common: (purchase price = 714,000/42,000 = $17 per share. sale price = 420,000/21 = $20 per share. profit = $20-17 = $3 per share)
Cash (debit) $420,000
Additional paid in capital (credit) $63,000 (21,000 shares *$3 profit)
Tresury stock (credit) $357,000 (21,000 shares *$17)
sale of 14,000 shares: (cost, as calculated = $17 per share. sale price per share = 210,000/14,000 = $15 per share. Loss = $2 per share (15-17)
Cash (debit) 210,000
Additional paid in capital (debit) 28,000 (14,000 shares *$2)
Treasury stock (credit) 238,000 (14,000 shares *17)
Dividends on preference shares: (total shares = 45,000+23,000 = 68,000 shares. dividend amount = 2% *68,000*100)
Dividend on preference shares (debit) $136,000
Cash (credit) $136,000
Dividend on common shares: (total shares = 190,000+70,000 = 260,000. amount = 260,000*0.04 = $10,400)
Dividend on common shares (debit) $10,400
Cash (credit) $10,400