Q41PGA_1 - Horngren'S Financial And Managerial Accounting

Question

Journalizing stock issuance and cash dividends and preparing the stockholders’ equity section of the balance sheet

D-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes D-Mobile to issue 50,000 shares of 8%, \(50 par value cumulative preferred stock and 160,000 shares of \)4 par value common stock. During the first month, D-Mobile completed the following transactions:

Oct. 2 Issued 19,000 shares of common stock for a building with a market value of \(240,000.

6 Issued 600 shares of preferred stock for \)140 per share.

9 Issued 11,000 shares of common stock for cash of \(55,000.

10 Declared a \)19,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.

25 Paid the cash dividend.

Requirements

1. Record the transactions in the general journal.
2.  Prepare the stockholders’ equity section of D-Mobile’s balance sheet at October 31, 2018. Assume D-Mobile’s net income for the month was $94,000.

Step-by-Step Solution

Answer

1. The debit and credit side of the journal totaled $417,000.
2. The total stockholders' equity of the company is $454,000at the end of the year.

Step 1: Meaning of Journal

Journal is a recording of all the business transactions in a systematic manner in a proper format.

Step 2: Journals

 

Date	Transaction	Debit	Credit
Oct 2	Building	$240,000
	Common stock		$76,000
	Paid-in capital in excess of par-Common		$164,000
	(To record issued common stock in exchange of building)
Oct 6	Cash	$84,000
	Preferred stock		$30,000
	Paid-in capital in excess of par		$54,000
	(To record issue of preferred stock)
Oct 9	Cash	$55,000
	Common stock		$44,000
	Paid-in capital in excess of par		$11,000
	(To record issue of common stock)
Oct 10	Retained earnings	$19,000
	Preferred stock dividend Payable		$2,400
	Common stock dividend Payable		$16,600
	(To record dividend declared)
Oct 25	Preferred stock dividend Payable	$2,400
	Common stock dividend Payable	$16,600
	Cash		$19,000
	(To record dividend paid)

 

Step 3: Balance Sheet (Partial)

 

Balance Sheet ( Partial) Dec 31
Particulars	Amount ($)
Stockholder equity:
Preferred stock	$30,000
Add: Paid-in capital-Preferred stock	$54,000
Common stock	$120,000
Add: Paid-in capital-Common stock	$175,000
Total paid in capital	$379,000
Add: Retained earnings	$75,000
Total stockholders' equity	$454,000

 

Working note:

Preferred stock  $\left(600\times \$50\right)$

Paid-in capital-Preferred stock $\left(\$84,000-\$30,000\right)$

Common stock $\left(\$76,000+\$44,000\right)$

Paid-in capital-Common stock $\left(\$164,000+\$11,000\right)$

Retained earnings $\left(\$94,000-\$19,000\right)$