Winterborn Manufacturing Co. completed the following transactions during 2016:
Jan. 16 Declared a cash dividend on the 4%, $100 par noncumulative preferred stock (950 shares outstanding). Declared a $0.40 per share dividend on the 95,000 shares of $4 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 50% stock dividend on the common stock. The market value of the common stock was $10 per share.
Aug. 15 Distributed the stock dividend.
Oct. 26 Purchased 1,400 shares of treasury stock at $9 per share.
Nov. 8Sold 700 shares of treasury stock for $11 per share.
30 Sold 500 shares of treasury stock for $6 per share.
Requirements
1. Record the transactions in Winterborn’s general journal.
2. Prepare the Winterborn’s stockholders’ equity section of the balance sheet as of December 31, 2016. Assume that Winterborn was authorized to issue 2,400 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, 2016, is $2,080,000.
SOLUTION
Requirement 1
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Jan. 16 | Cash Dividends | 41,800 | |
| Dividends Payable—Preferred (4% × $100 × 950 shares) | 3,800 | ||
| Dividends Payable—Common ($0.40 ×95,000 shares) | 38,000 | ||
| Declared cash dividend. | |||
| Feb. 15 | Dividends Payable—Preferred | 3,800 | |
| Dividends Payable—Common | 38,000 | ||
| Cash | 41,800 | ||
| Paid cash dividend. | |||
| Jun. 10 | No entry | ||
| Jul. 30 | Stock Dividends ($2per share × 190,000 shares × 0.50) | 190,000 | |
| Common Stock Dividend Distributable | 190,000 | ||
| Declared a 50% stock dividend. | |||
| Aug. 15 | Common Stock Dividend Distributable | 190,000 | |
| Common Stock—$2 Par Value | 190,000 | ||
| Issued 50% stock dividend. | |||
| Oct. 26 | Treasury Stock—Common ($9 per share × 1,400 shares) | 12,600 | |
| Cash | 12,600 | ||
| Purchased treasury stock. | |||
| Nov. 8 | Cash ($11 per share × 700 shares) | 7,700 | |
| Treasury Stock—Common ($9cost per share × 700 shares) | 6,300 | ||
| Paid-In Capital from Treasury Stock Transactions ($2 ×700 shares) | 1,400 | ||
| Sold treasury stock with cost of $9 per share. | |||
| 30 | Cash ($6 per share × 500 shares) | 3,000 | |
| Paid-In Capital from Treasury Stock Transactions | 1,400 | ||
| Retained Earnings ($4,500 – $3,000 – $1,400) | 100 | ||
| Treasury Stock—Common ($9 cost per share × 500 shares) | 4,500 | ||
| Sold treasury stock with cost of $9 per share. | |||
Requirement 2
| Paid-In Capital: | |
| Noncumulative Preferred Stock—4%, $100 Par Value; 2,400 shares authorized, 950 shares issued and outstanding | $ 95,000 |
| Common Stock—$2 Par Value; 500,000 shares authorized, 285,000 shares issued and 284,800 outstanding | 570,000 |
| Total Paid-In Capital | 665,000 |
| Retained Earnings | 2,080,000 |
| Treasury Stock (200 shares at cost) | (1,800) |
| Total Stockholders’ Equity | $ 2,743,200 |
| Jan. 16 | Shares of Common Stock | 95,000 |
|---|---|---|
| Jun. 10 | Shares after stock split | 190,000 |
| Jul. 30 | Shares after stock dividend—50% | 285,000 |