54CP - Horngren'S Financial And Managerial Accounting

Question

Journalizing stock issuances, cash dividends, and stock dividends; preparing stockholders’ equity section of balance sheet

This problem continues the Canyon Canoe Company situation from Chapter 12. After looking into debt financing through notes, mortgage, and bonds payable, Canyon Canoe Company decides to raise additional capital for the planned business expansion. The company will be able to acquire cash as well as land adjacent to its current business location. Before the following transactions, the balance in Common Stock on January 1, 2021, was \(136,000 and included 136,000 shares of common stock issued and outstanding. (There was no Paid-In Capital in Excess of Par—Common.) Canyon Canoe Company had the following transactions in 2021:

Jan. 1 Issued 50,000 shares of \)1 par value common stock for a total of 

\(200,000.

10 Issued 20,000 shares of 4%, \)3 par value preferred stock in exchange for 

land with a market value of \(70,000.

Dec. 15 Declared total cash dividends of \)15,000.

20 Declared an 8% common stock dividend when the market value of the 

stock was \(4.50 per share.

31 Paid the cash dividends.

31 Distributed the stock dividend.

Requirements

1. Journalize the transactions.

2. Calculate the balance in Retained Earnings on December 31, 2021. Assume the balance on January 1, 2021 was \)4,250 and net income for the year was $417,000.

3. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. There was no preferred stock issued prior to the 2021 

transactions

Step-by-Step Solution

Answer

1. 50,000 common stock issued; 20,000 preferred shares issued; $15,000 dividend paid, and $4,000 stock dividend paid.
2. Statement of Retained Earnings for the year ended December 31, 2021, is $406,250
3. Total stockholders' equity of the company at the end of the year is $808,250

Step 1: Journal entries

Date	Transaction	Debit	Credit
Jan 1	Cash	$200,000
	Common stock		$50,000
	Paid-in capital in excess of par- common		$150,000
	To record issued common stock
Jan 10	Land	$70,000
	Preferred stock		$60,000
	Paid- in capital in excess of par- preferred		$10,000
	To record issued preferred stock in exchange of land
Dec 15	Retained Earnings	$15,000
	Preferred stock dividend payable		$2,400
	Common stock dividend payable		12,600
	To record dividend declared
Dec 20	Stock dividend	$18,000
	Common stock distributable		$4,000
	Paid-in capital in excess of par		$14,000
	To record stock dividend declared
Dec 31	Preferred stock dividend payable	$2,400
	Common stock dividend payable	12,600
	Cash		$15,000
	To record cash dividend paid
Dec 31	Common stock distributable	$4,000
	Common stock		$4,000
	To record stock dividend distributed

Step 2: Statement of Retained Earnings-

Statement of Retained Earnings                          December 31, 2018

Retained Earnings, beginning of the year	$4,250
Less: Dividend paid	($15,000)
Add: Net Income	$417,000
Retained Earnings, ending of the year	$406,250

Step 3: Balance Sheet (Partial)

Balance Sheet (Partial) Dec 31, 2018

Particulars	Amount ($)
Stockholder equity:
Preferred Stock	$60,000
Paid-in capital in excess of par	$10,000
Common stock	$182,000
Paid-in capital-Common stock	$150,000
Total paid in capital	$402,000
Add: Retained earnings	$406,250
Total Shareholders’ Equity	$808,250