E15-18 (Dividends and Stockholders’ Equity Section) Anne Cleves Company reported
the following amounts in the stockholders’ equity section of its December 31, 2006,
balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares
issued) $200,000 Common stock, $5 par (100,000 shares authorized, 20,000 shares issued)
100,000 Additional paid-in capital 125,000 Retained earnings 450,000 Total $875,000
(L0 4, 7, 8) (L0 6, 7, 8) During 2007, Cleves took part in the following transactions
concerning stockholders’ equity. 1. Paid the annual 2006 $10 per share dividend on
preferred stock and a $2 per share dividend on common stock. These dividends had been
declared on December 31, 2006. 2. Purchased 1,700 shares of its own outstanding
common stock for $40 per share. Cleves uses the cost method. 3. Reissued 700 treasury
shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $105 per
share. 5. Declared a 10% stock dividend on the outstanding common stock when the
stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual
2007 $10 per share dividend on preferred stock and the $2 per share dividend on common
stock. These dividends are payable in 2008. Instructions (a) Prepare journal entries to
record the transactions described above. (b) Prepare the December 31, 2007,
stockholders’ equity section. Assume 2007 net income was $330,000.
(a)
1.
2.
3.
4.
5.
Dividends Payable—Preferred (2,000 X $10) .................................
20,000
Dividends Payable—Common (20,000 X $2) ..................................
40,000
Cash....................................................................................
60,000
Treasury Stock ............................................................................
68,000
Cash (1,700 X $40) ............................................................
68,000
Land .............................................................................................
30,000
Treasury Stock (700 X $40) .............................................
Paid-in Capital From Treasury Stock ............................
Cash (500 X $105) .......................................................................
52,500
Preferred Stock (500 X $100) ..........................................
Paid-in Capital in Excess of Par—
Preferred ........................................................................
Retained Earnings (1,900* X $45) .............................................
85,500
Common Stock Dividend Distributable
(1,900 X $5).....................................................................
Paid-in Capital in Excess of Par—
Common .........................................................................
28,000
2,000
50,000
2,500
9,500
76,000
*(20,000 – 1,700 + 700 = 19,000; 19,000 X 10%)
6.
7.
Common Stock Dividend Distributable ....................................
9,500
Common Stock ..................................................................
Retained Earnings.......................................................................
66,800
Dividends Payable—Preferred
(2,500 X $10)...................................................................
Dividends Payable—Common
(20,900* X $2).................................................................
9,500
25,000
41,800
*(19,000 + 1,900)
(b)
Anne Cleves Company
Stockholders’ Equity
December 31, 2007
Capital stock
Preferred stock, 10%, $100 par, 10,000 shares
authorized, 2,500 shares issued and
outstanding
Common stock, $5 par, 100,000 shares
authorized, 21,900 shares issued, 20,900
shares outstanding
Total capital stock
Additional paid-in capital
Total paid-in capital
Retained earnings
Total paid-in capital and retained earnings
Less: Cost of treasury stock (1,000 shares common)
Total stockholders’ equity
Computations:
Preferred stock
$200,000 + $50,000 = $250,000
Common stock
$100,000 + $ 9,500 = $109,500
Additional paid-in capital: $125,000 + $2,000 + $2,500 + $76,000 =
$205,500
$250,000
109,500
359,500
205,500
565,000
627,700
1,192,700
40,000
$1,152,700
Retained earnings: $450,000 – $85,500 – $66,800 + $330,000 =
$627,700
Treasury stock $68,000 – $28,000 = $40,000