Q49PGB - Horngren'S Financial And Managerial Accounting

Question

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

Halborn Manufacturing Co. completed the following transactions during 2018:

Jan. 16 Declared a cash dividend on the 6%, \(97 par noncumulative preferred stock (1,150 shares outstanding). Declared a \)0.20 per share dividend on the 80,000 shares of \(8 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 40% stock dividend on the common stock. The market value 

of the common stock was \)8 per share.

Aug. 15 Distributed the stock dividend.

Oct. 26 Purchased 8,000 shares of treasury stock at \(9 per share.

Nov. 8 Sold 4,000 shares of treasury stock for \)10 per share.

30 Sold 1,400 shares of treasury stock for \(5 per share.

Requirements

1. Record the transactions in Halborn’s general journal.

2. Prepare the Halborn’s stockholders’ equity section of the balance sheet as of December 31, 2018. Assume that Halborn was authorized to issue 2,200 shares of preferred stock and 500,000 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 \)2,030,000.

Step-by-Step Solution

Answer

Jan 31- Retained earnings $22,693 (Debited) Preferred stock dividend payable $6,693 (credited) and Common stock dividend payable $16,000 (credited)

Feb 15- Preferred stock dividend payable $6,693 (debited) and Common stock dividend payable $16,000 (debited) and cash $22,693 (credited)

b. The stockholders’ equity of balance sheet on December 31, 2018, shows balance of $2,547,350. 

Step 1: Journals-

Date	Transaction	Debit	Credit
Jan 31	Retained Earnings	$22,693
	Preferred stock dividend payable (1,150*$97*6%)		$6,693
	Common stock dividend payable (80,000*$0.20)		$16,000
	To record dividend declared
Feb 15	Preferred stock dividend payable	$6,693
	Common stock dividend payable	$16,000
	Cash		$22,693
	To record dividend paid
Jun10	No entry
Jul 30	Stock dividend (80,000*$8*40%)	$256,000
	Common stock distributable		$256,000
	To record stock dividend declared
Aug 15	Common stock distributable	$256,000
	Common stock		$256,000
	To record dividend paid
Oct 26	Treasury stock ($8,000 * 9)	$72,000
	Cash		$72,000
	To record purchase of treasury stock
Nov 8	Cash (4,000 * $10)	$$40,000
	Treasury stock		$36,000
	Paid-in capital in excess of par		$4,000
	To record sold treasury stock
Nov 30	Cash (1,400*$5)	$7,000
	Paid-in capital in excess of par	$5,600
	Treasury stock		$12,600
	To record sold treasury stock

 

Step 2: Balance Sheet (Partial)-

Balance Sheet (Partial) December 31, 2018
Shareholders’ Equity
Preferred stock	$111,550
Common stock	$384,000
Treasury stock ($36,000-$12,600)	$23,400
Paid in capital in excess of par- treasury	($1,600)
Total paid in capital	$517,350
Add: Retained Earnings	$2,030,000
Total Shareholders’ equity	$2,547,350