Question

On January 1, 2012, Browning Corporation had 75,000 shares of $1 par value common stock issued and outstanding. During the year, the following transactions occurred:

Mar. 1 Issued 60,000 shares of common stock for $675,000
June 1 Declared a cash dividend of $2.00 per share to stockholders of record on June 15

June 30 Paid the $2.00 cash dividend
Dec. 1 Purchased 5,000 shares of common stock for the treasury for $18 per share

Dec. 15 Declared a cash dividend on outstanding shares of $2.50 per share to stockholders of record on December 31

Net income for 2012 amounted to $951,000.

Instructions

Prepare journal entries to record the above transactions.

Answer 1

The solution are given as under:

Step-by-step explanation:

Part 1. The entry would record common stock at part and the above par value would be paid in capital.

Dr Cash $675,000

Cr Common Stock $60,000

Cr Paid In Capital $615,000

Part 2. When dividend is declared, dividend payable must be recognized against the Retained Earnings.

Dividends Payable can be calculated by finding out the total shares on 15th of June, which is:

Total shares = Shares issued + Previously Held shares

= 75,000 + 60,000 = 135,000

Now the total dividend that is payable is:

Dividend Declared = Total Number of Shares * Dividend per share

= 135,000 Shares * $2 per share = $270,000

Dr Retained Earnings $270,000

Cr Dividend Payables $270,000

Part 3. The payment of dividends will decrease the dividend payables with $270,000, so the double entry would be:

Dr Dividend Payables $270,000

Cr Cash Account $270,000

Part 4. The purchasing of the treasury stock would be recorded as under:

Dr Treasury Stock $90,000 ..... $15 per share * 5000 shares

Cr Cash Account $90,000

Part 5. The cash dividend declared would be similarly the way we calculated in the part 3 but here we will also account for the treasury stock as under:

Total shares = Shares issued + Previously Held shares - Treasury Stock

= 75,000 + 60,000 - 5,000 = 130,000

Now the total dividend that is payable is:

Dividend Declared = Total Number of Shares * Dividend per share

= 130,000 Shares * $2.5 per share = $325,000

Dr Retained Earnings $325,000

Cr Dividend Payables $325,000