Answer:
Cullumber Company
Journal Entries:
January 10:
Debit Cash with $13,250,000
Credit 8% Cumulative Preferred Stock with $13,000,000
Credit Additional Paid-in Capital- Preferred Stock with $250,000
To record issue of 125,000 shares, par $104 at $106 each.
February 8:
Debit Treasury Stock with $
Debit Additional Paid-in Capital with $79,200
Credit Cash Account with $158,400
To record 13,200 common stock reacquired at $12 per share.
May 9:
Debit Dividend - Preferred with $520,000
Credit Dividends Payable with $520,000
To record 8% dividend on Preferred Stock for the half-year.
May 31:
Debit Dividends Payable with $520,000
Credit Cash Account with $520,000
To record payment of dividends to preferred stockholders.
June 8:
Debit Dividends - Common with $1,340,640
Credit Dividends Payable with $1,340,640
To record $1.05 per share on the common stock outstanding.
July 10:
Debit Dividends Payable with $1,340,640
Credit Cash Account with $1,340,640
To record payment of dividends to common stockholders.
No. 5:
Debit Net Income with $3,651,000
Credit Retained Earnings with $3,651,000
To record the transfer of net income to Retained Earnings.
Step-by-step explanation:
a) The preferred stock was issued at $106 with $104 par value. The difference of $2 x $125,000 is recorded as Additional Paid-in Capital - Preferred Stock. This is equal to $250,000.
b) Treasury Stock represents outstanding shares reacquired. The par value was $6, but the reacquisition cost was $12. This gives additional cost of $6. This additional cost is taken to the Additional Paid-in Capital Account as a debit. The par value is debited to the Treasury Stock account. The method used is the par value method.
c) When cash preferred dividends are declared for the half-year, the dividend calculation is prorated because ordinarily the dividend is 8% per annum.
d) The cash dividend for common stock is not prorated since it is not based on a fixed percentage per annum unlike the preferred stock.