Journalizing dividends and treasury stock transactions and preparing the stockholders’ equity section of the balance sheet

Deerborn Manufacturing Co. completed the following transactions during 2018:

Jan. 16 Declared a cash dividend on the 6%, \(103 par noncumulative preferred stock (1,050 shares outstanding). Declared a \)0.20 per share dividend on the 100,000 shares of \(2 par value common stock outstanding. The date of record is January 31, and the payment date is February 15.

Feb. 15 Paid the cash dividends.

Jun. 10 Split common stock 2-for-1.

Jul. 30 Declared a 30% stock dividend on the common stock. The market value

of the common stock was \)9 per share.

Aug. 15 Distributed the stock dividend.

Oct. 26 Purchased 1,000 shares of treasury stock at \(8 per share.

Nov. 8 Sold 500 shares of treasury stock for \)10 per share.

30 Sold 300 shares of treasury stock for \(4 per share.

Requirements

1. Record the transactions in Deerborn’s general journal.
2. Prepare the Deerborn’s stockholders’ equity section of the balance sheet as of December 31, 2018. Assume that Deerborn was authorized to issue 2,600 shares of preferred stock and 400,000 shares of common stock. Both preferred stock and common stock were issued at par. The ending balance of retained earnings as of December 31, 2018, is \)2,060,000.

Step by step solution

01

Meaning of Journal

Journal refers to recording the business transactions in a proper format in the manner in which they occurred.

02

Showing journal entries

Date	Transaction	Debit	Credit
Jan 31	Retained Earnings	$26,489
	Preferred stock dividend payable		$6,489
	Common stock dividend payable		$20,000
	(To record dividend declared)
Feb 15	Preferred stock dividend payable	$6,489
	Common stock dividend payable	$20,000
	Cash		$26,489
	(To record dividend paid)
Jun 10	No entry
Jul 30	Common stock	$60,000
	Common stock distributable		$60,000
	(To record dividend declared)
Aug 15	Common stock distributable	$60,000
	Common stock		$60,000
	(To record stock dividend paid)
Oct. 26	Treasury stock	$8,000
	Cash		$8,000
	(To record treasury stock purchased)
Nov 8	Cash	$5,000
	Treasury stock		$4,000
	APIC- Treasury stock		$1,000
	(To record treasury stock sold)
Nov 30	Cash	$1,200
	APIC- Treasury stock	$1,200
	Treasury stock		$2,400
	(To record treasury stock sold)

03

Balance sheet (Partial)

Balance Sheet (Partial) Dec 31
Particulars	Amount ($)
Stockholder equity:
Preferred stock	$108,150
Common stock	$140,000
Treasury stock	$1,600
Less: APIC- Treasury stock	($200)
Total paid in capital	$249,550
Add: Retained earnings	$2,033,511
Total stockholders' equity	$2,283,061

Working note:

Preferred stock$\left(1050\times \$103\right)$

Common stock$\left(200,000\times \$1\times 30\%\right)$

Treasury stock$\left(\$8000-\$4000-\$1200\right)$

Less: APIC- Treasury stock$\left(\$1000-\$1200\right)$

Retained earnings$\left(\$20,60,000-\$26,489\right)$

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