Question

Nautical has two classes of stock authorized: $10 par preferred, and $1 par value common. As of the beginning of 2018, 150 shares of preferred stock and 2,200 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2018:
March 1 Issue 2,200 additional shares of common stock for $17 per share.
April 1 Issue 150 additional shares of preferred stock for $32 per share.
June 1 Declare a cash dividend on both common and preferred stock of $0.60 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Purchase 250 shares of common treasury stock for $14 per share.
October 1 Reissue 150 shares of treasury stock purchased on August 1 for $16 per share.
Nautical has the following beginning balances in its stockholders’ equity accounts on January 1, 2018:
Preferred Stock, $1,500;
Common Stock, $2,200;
Additional Paid-in Capital, $18,700; and Retained Earnings, $10,700.
Net income for the year ended December 31, 2018, is $7,250.
Required:
a) Record each of these transactions.

Answer 1

Answer and Explanation:

The journal entries are shown below:

On Mar 1

Cash (2,200 × $17) $37,400  

  To Common Stock (2,200 × $1)  $2,200

  To Paid in capital in excess of par - Common stock (2,200 × $16)  $35,200

(Being the issuance of the common stock is recorded)  

On April 1

Cash (150 × $32) $4,800  

       To  Preferred stock (150 × $10)  $1,500

        To Paid in capital in excess of par - Preferred stock (150 × $22)  $3,300

(Being the issuance of  the preferred stock is recorded)  

O Jun 1

Dividends    $2,820  

   Dividends payable  $2,820

(Being the dividends declared is recorded)

 

On June 30

Dividends payable $2,820  

         To    Cash  $2,820

(Being the dividends paid is recorded)  

On Aug 1

Treasury stock (250 × $14) $3,500  

      To Cash  $3,500

(Being the treasury stock is recorded)  

On Oct 1

Cash (150 × $16) $2,400  

  To Treasury stock (150 × $14)  $2,100

  To Paid in capital in excess of par -Treasury stock (150 × $2)  $300

(Being the reissue of treasury stock is recorded)  

The computation of the dividend is shown below:

For common stock

= (2,200 + 2,200) × $0.60

= 4,400 × $0.60

= $2,640

For  preferred stock

= (150 + 150) × $0.60

= $180

Total dividends is

= $2,640 +$180

= $2,820