Question

Corporation has the following capital structure at the beginning of the year:4% Preferred stock, $50 par value, 20,000 shares authorized, 5,000 shares issued and outstanding$250,000Common stock, $10 par value, 60,000 shares authorized, 41,000 shares issued and outstanding410,000Paid-in capital in excess of par105,000Total paid-in capital765,000Retained earnings425,000Total stockholders' equity$1,190,0001.A total cash dividend of $75,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts.2.A 15% common stock dividend was declared. The average fair value of the common stock is $24 a share.3.Assume that net income for the year was $147,000 (record the closing entry) and the board of directors appropriated $73,000 of retained earnings for plant expansion.No.Account Titles and ExplanationDebitCredit1.2.3.(To record the closing entries.)(To record appropriated retained earnings.)

Answer 1

The journal entries are as follows:

(1)

Retained Earnings A/c Dr. $75,000

Dividends Payable - Preference Shares $10,000

Dividends Payable - Common Stock $65,000

Workings:

Out of $75,000 dividend payable, $10,000 is for the preference dividend being 4% of $250,000 and remaining is for common stock which is $65,000 .

(2) A 15% common stock dividend was declared. The average market value of the common stock is $24

a share.

Retained Earnings..............................Dr... $147,600

Common Stock to be distributed (at par)..........Cr.$61,500

Additional Paid in Capital from stock dividend....Cr.$86,100

Workings:

15% common stock dividend was declared means 15% of 41,000 shares which is 6,150, common stock was declared as dividend at a prevailing market price of $24 out of which $10 is the par value and the remaining $14 is to be covered from additional paid in capital.

(3) (i)

Income Summary A/c Dr. $147,000

To Retained Earnings $147,000

(To record closing entries)

(ii)

Retained Earnings A/c Dr. $73,000

To Retained Earnings appropriated on plant expansion $73,000

(To record appropriated retained earnings)