Question

Northwest Clothing Supply has the following transactions during the year related to stockholders' equity:

January 1 Issues 3,000 shares of no-par value common stock for $22 per share.
March 15 Issues 900 shares of $20 par value preferred stock for $23 per share.
December 1 Declares a cash dividend of $1 per share to all stockholders of record (both common and preferred) on December 15.
December 15 Northwest Clothing Supply has fixed the Record Date for both common and preferred shares as December 15.
December 31 Pays the cash dividend declared on December 1.

Required:
Record each of these transactions.

Answer 1

January 1

Debit : Cash $66,000

Credit : Common Stock (3,000 x $22) $66,000

March 15

Debit : Cash $20,700

Credit : Preferred Stock ($20 x 900) $18,000

Credit : Preferred Stock Paid in excess of Par ($3 x 900) $ $2,700

December 1

Debit : Dividends ($3000 + $900) $3,900

Credit : Shareholders for dividends $3,900

December 15

No Journal entry required here !

December 31

Debit : Shareholders for dividends $3,900

Credit : Cash $3,900

Step-by-step explanation:

It is very important to identify the Par Value and No Par Value Stock issues.

Par Value Stock issues are sometimes issued above their Par so a Reserve - Paid In Excess of Par has to be created.

No Par Value issued are simply recorded at paid up or issue price.