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Annette [7]
2 years ago
15

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.
Business
1 answer:
bixtya [17]2 years ago
5 0

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)

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Explanation:

The amount by which the companywide income will increase or decrease if West Division is eliminated can be determined by comparing Revenue with avoidable cost.

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In this question, avoidable cost is simply the cost or expenses that will be eliminated if West Division is eliminated.

Among all the expenses in the question, only Companywide facility-sustaining costs which is $78,000 cannot be eliminated if West Division is eliminated.

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1. If revenue is greater than avoidable cost, we have a decrease in income. Therefore, the division should not be eliminated.

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Since the revenue of $300,000 is less than the avoidable cost of $306,000, it implies we have an increase in income based on the decision rule 2. The increase in income is calculated as follows:

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