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Chapter 13: 53CT (page 725)

Using Excel for stockholders’ equity transactions and preparing financial statements

Download an Excel template for this problem online in MyAccountingLab or at http://www.pearsonhighered.com/Horngren.

Naxion Corporation began operations on January 2, 2018, and had the following transactions during the year:

Jan. 2 Issued 250,000 shares of \(1 par value common stock at \)45 per share. Total shares authorized: 1,000,000.

Feb. 5 Issued 10,000 shares of \(50 par, 5% cumulative preferred stock at \)65 per share. Total shares

authorized: 25,000.

Mar. 15 Issued 150,000 shares of \(1 par value common stock at \)35 per share.

Apr. 2 Declared a \(2.50 per share cash dividend on its preferred stock to be paid on April 25. Date of

record is April 10.

3 Declared a \)0.10 per share cash dividend on its common stock to be paid on April 26. Date of record

is April 10.

Jun. 1 Declared a 2% stock dividend on all common stock outstanding. Current market price of the stock

was \(48 per share. Date of record is June 15.

30 Distributed common stock dividend to shareholders.

Oct. 10 Purchased 2,500 shares of treasury stock—common at \)52 per share.

Nov. 15 Sold 2,000 shares of treasury stock—common at \(54 per share.

Requirements

1. Journalize Naxion’s transactions for 2018.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018, including the heading. Assume Naxion had net income of \)15,000,000 during 2018. This is the first year of operations.

3. Determine Naxion’s earnings per share for 2018, rounded to two decimal places. For the average number of common shares outstanding, average the number of shares outstanding on January 2 and December 31.

4. Assuming Naxion’s market value per common share as of December 31, 2018, was $55, calculate Naxion’s price/earnings ratio for 2018, rounded to two decimal places.

Short Answer

Expert verified
  1. 400,000 common shares issued and outstanding; 10,000 preferred stocks issued and outstanding; 65,000 cash dividends paid; 8,000 stock dividend paid; 2,500 shares repurchased as treasury stock and 2,000 treasury stock sold.
  2. Total Shareholders’ equity of the company at the end of the year is $32,458,500
  3. Earnings per share of the company is $40.07.
  4. Price/earnings ratio of the company is $1.37.

Step by step solution

01

Journal entires

Date

Transaction

Debit

Credit

Jan 2

Cash

$11,250,000

Common stock

$250,000

Paid- in capital in excess of par- common

$11,000,000

To record issue of common stock

Feb 5

Cash

$650,000

Preferred stock

$500,000

Paid- in capital in excess of par- preferred

$150,000

To record issue of preferred stock

Mar 15

Cash

$5,250,000

Common stock

$150,000

Paid- in capital in excess of par- common

$5,100,000

To record issue of common stock

Apr 10

Retained Earnings

$25,000

Preferred stock dividend payable

$25,000

To record dividend declared

Apr 10

Retained Earnings

$40,000

Common stock dividend payable

$40,000

To record dividend declared

Apr 25

Preferred stock dividend payable

$1,250,000

Cash

$1,250,000

To record dividend paid

Apr 26

Common stock dividend payable

$40,000

Cash

$40,000

To record dividend paid

Jun 15

Stock dividend

$384,000

Common stock distributable

$8,000

Paid-in capital in excess of par

$376,000

To record stock dividend

Jun 30

Common stock distributable

$8,000

Common stock

$8,000

To record stock dividend distributed

Oct 10

Treasury stock

$130,000

Cash

$130,000

To record purchase of treasury stock

Nov 15

Cash

$108,000

Treasury Stock

$104,000

Paid-in capital in excess of par- treasury

$4,000

To record treasury stock sold

02

Balance Sheet (Partial) -

Balance sheet

December 31, 2018

Shareholders’ Equity

Preferred stock

$500,000

Paid- in capital in excess of par- preferred

$150,000

Common stock

$389,500

Paid- in capital in excess of par- common

$16,376,000

Treasury stock

$104,000

Paid-in capital in excess of par- treasury

$4,000

Total paid in capital

$17,523,500

Add: Retained Earnings

$14,935,000

Total Shareholders’ equity

$32,458,500

03

Earnings Per Share-

Net Income

$15,000,000

Less: Preferred Stock

$25,000

a

$14,975,000

b. Weighted average outstanding common stock

373,750

Earnings per share (a/b)

$40.07

04

Price/earnings ratio-

Market value per common share

$55

Earnings per share

$40.07

Price/earnings ratio

$1.37

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Most popular questions from this chapter

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