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Chapter 15: Question 11BE (page 811)

Cole Inc. owns shares of Marlin Corporation stock. At December 31, 2017, the securities were carried in Cole’s accounting records at their cost of \(875,000, which equals their fair value. On September 21, 2018, when the fair value of the securities was \)1,200,000, Cole declared a property dividend whereby the Marlin securities are to be distributed on October 23, 2018, to stockholders of record on October 8, 2018. Prepare all journal entries necessary on those three dates.

Short Answer

Expert verified

The Equity investment should be credited by $1,200,000.

Step by step solution

01

Meaning of Dividend

Shareholders who own stock in a company are eligible for dividends from the profit made by the company. The dividend amount depends upon the number and type of share a shareholder owns.

02

Preparing Journal Entries

Date

Particular

Folio

Debit $

Credit $

September 21

Equity Investment A/c

325,000

Unrealized holding Gain or Loss income

($1,200,000-$875,000) A/c.

325,000

To record the issue of equity investment

Retained Earnings A/c.

1,200,000

Property Dividends Payable

1,200,000

To record the payment of dividend

October 08

No Entry

October 23

Property Dividends payable A/c.

1,200,000

Equity Investments A/c.

1,200,000

To record the payment of dividend

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Most popular questions from this chapter

Describe the accounting for the issuance for cash of no-par value common stock at a price in excess of the stated value of the common stock.

Buttercup Corporation issued 300 shares of \(10 par value common stock for \)4,500. Prepare Buttercup’s journal entry.

Why is a preemptive right important?

McNabb Corp. had \(100,000 of 7%, \)20 par value preferred stock, and 12,000 shares of \(25 par value common stock outstanding throughout 2017.

  1. Assuming that total dividends declared in 2017 were \)64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2017 dividends of what amount?
  2. Assuming that total dividends declared in 2017 were \(64,000, and that the preferred stock is fully participating and cumulative with preferred dividends in arrears for 2016, preferred stockholders should receive 2017 dividends totaling what amount?
  3. Assuming that total dividends declared in 2017 were \)30,000, that the preferred stock is cumulative, nonparticipating, and was issued on January 1, 2016, and that $5,000 of preferred dividends were declared and paid in 2016, the common stockholders should receive 2017 dividends totaling what amount?

Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock.

S.no.

Particular

Folio

Debit \(

Credit \)

May 2

Cash

192,000

Capital Stock

192,000

(Issued 12,000 shares of \(5 par value common stock at \)16 per share)

May 10

Cash

600,000

Capital Stock

600,000

(Issued 10,000 shares of \(30 par value preferred stock at \)60 per share)

May 15

Capital Stock

15,000

Cash

15,000

(Purchased 1,000 shares of common stock for the treasury at \(15 per share)

May 31

Cash

8,500

Capital Stock

5,000

Gain on Sale of Stock

3,500

(Sold 500 shares of treasury stock at \)17 per share)

Instructions

On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions.
See all solutions

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