53CT

Question

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.

Step-by-Step Solution

Verified

Answer

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.
Total Shareholders’ equity of the company at the end of the year is $32,458,500
Earnings per share of the company is $40.07.
Price/earnings ratio of the company is $1.37.

1Step 1: 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

2Step 2: 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