Question

Italian Stallion has the following transactions during the year related to stockholders’ equity. February 1 Issues 5,000 shares of no-par common stock for $15 per share. May 15 Issues 500 shares of $10 par value, 7.5% preferred stock for $12 per share. October 1 Declares a cash dividend of $0.75 per share to all stockholders of record (both common and preferred) on October 15. October 15 Date of record. October 31 Pays the cash dividend declared on October 1.Record each of these transaction.

Answer 1

Answer:

The Journal entries are as follows:

(a) On Feb 1,

Cash A/c (5,000 × $15)          Dr. $75,000

To common stock                                        $75,000

(To record the issue of shares)

(b) On May 15,

Cash A/c (500 × $12)                   Dr. $6,000

To Preferred stock  (500 × $10)                         $5,000

To Paid in capital in excess of par                      $1,000

(To record the issue of preferred shares)

(c) On Oct 1,

Dividend Expense A/c (5,500 × $0.75)          Dr. $4,125

To Dividend Payable                                                            $4,125

(To record the declaration of dividend)

(d) On Oct 15,

No Journal entry would be passed.

(e) On Oct 31,

Dividend Payable A/c             Dr. $4,125

To cash                                                       $4,125

(To record the payment of dividend)