Answer:
Riverbed Company
a) Journal Entries during 2020:
1. Debit Dividends Payable - Preferred Stock with $23,100
Debit Dividends Payable - Common Stock with $41,500
Credit Cash Account with $64,900
To record the payment of dividends.
2. Debit Treasury Stock with $62,400
Credit Cash Account with $62,400
To record the repurchase of 1,600 shares of common stock for $39 per share, using the cost method.
3. Debit Land Account with $28,700
Credit Treasury Stock with $28,700
To record the reissue of 700 treasury shares for land.
4. Debit Cash account with $56,710
Credit Preferred Stock with $53,000
Credit Additional Paid-in Capital- Preferred with $3,710
To record the issue of 530 shares of preferred stock at $107 per share.
5. Debit Stock Dividend with $10,000
Credit Dividends Payable with $10,000
To record the declaration of 10% stock dividend on outstanding common stock.
6. Debit Dividends Payable with $10,000
Credit Common Stock with $10,000
To record the issue of stock dividend.
7. Debit Dividends - Preferred with $28,930
Debit Dividends - Common Stock with $44,000
Credit Dividends Payable with $72,930
To record declaration of $11 per share dividend on preferred stock and $2 on common stock.
b) Stockholders' Equity Section of the Balance Sheet:
Preferred Stock:
Authorized, 10,000 at $100 par = $0
Issued and paid up, 2630 at $100 = $263,000
Additional Paid-in Capital - Preferred = $3,710
Common Stock:
Authorized 104,500 at $5 par value = $0
Issued and Paid up, 22,900 at $5 = $114,500
Less Treasury Stock, 900 shares = $33,700
Additional Paid-in Capital - Common = $135,000
Retained Earnings = $753,670 ($492,000 + 334,600 - 72,930)
Total = $1,236,180
Explanation:
1. The authorized stock does not form part of the value of equity. This is why, for this case, a nominal value of $0 was assigned. The authorized stock represents the maximum number of shares the company is legally authorized to issue.
2. The 2019 annual dividends paid were based on 2,100 shares issued for preferred and 20,00 shares for the common stock.
3. Treasury Stock is used to record the repurchase of own stock. Based on the cost method, the total costs of issue and repurchase are recorded in the Treasury Stock without the above-par value being taken to the Additional Paid-in Capital. The reissue of treasury stock for land does not affect the Cash Account. The debit entry is to the Land Account.
4. Stock dividend declared and issued was calculated based on the outstanding balance at that time. The outstanding totalled 20,000 shares. 10% of 20,000 equals 2,000. This implies that additional stock was granted to stockholders as dividend. The market price does not have to be taken into account in Riverbed.
5. Dividends declared on preferred stock was $11 per share. The preferred stock at the time was 2,630 (2,100 + 530) after the issue of additional 530 shares of preferred stock.
6. The Retained Earnings are adjusted for net income and dividends declared for the year. Note: The payment of dividend for 2019 does not affect the Retained Earnings.
