Question

The stockholders’ equity accounts of Castle Corporation on January 1, 2020, were as follows.

Preferred Stock (8%, $50 par, 10,000 shares authorized) $400,000
Common Stock ($1 stated value, 2,000,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par—Preferred Stock 100,000
Paid-in Capital in Excess of Stated Value—Common Stock 1,450,000
Retained Earnings 1,816,000
Treasury Stock (10,000 common shares) 50,000
During 2020, the corporation had the following transactions and events pertaining to its stockholders’ equity.
Feb. 1 Issued 25,000 shares of common stock for $120,000.
Apr. 14 Sold 6,000 shares of treasury stock—common for $33,000.
Sept. 3 Issued 5,000 shares of common stock for a patent valued at $35,000.
Nov. 10 Purchased 1,000 shares of common stock for the treasury at a cost of $6,000.
Dec. 31 Determined that net income for the year was $452,000.
Instructions:
A) Journalize the transactions and the closing entry for net income.
B) Enter the beginning balances in the accounts, and post the journal entries to the stockholders’ equity accounts. (Use J5 for the posting reference.)
C) Prepare a stockholders’ equity section at December 31, 2017.

Answer 1

Castle Corporation

A) Journal Entries:

Feb. 1:

Debit Cash Account $120,000

Credit Common Stock $25,000

Credit Paid-in Capital in Excess of Stated Value—Common Stock $95,000

To record the issue of 25,000 common stock shares for $120,000

Apr. 14:

Debit Cash Account $33,000

Credit Treasury Stock $33,000

To record the reissue of 6,000 shares of treasury stock- common for $33,000.

Sept. 3:

Debit Patent $35,000

Credit Common Stock $5,000

Credit Paid-in Capital in Excess of Stated Value—Common Stock $30,000

To record the issue of common stock shares for a patent valued at $35,000

Nov. 10:

Debit Treasury Stock $6,000

Credit Cash $6,000

To record the purchase of treasury stock for $6,000

Dec. 31:

Debit Net Income (Income Statement) $452,000

Credit Retained Earnings $452,000

To close the net income on the income statement to the Statement of retained earnings.

B) Stockholders' Equity Accounts:

Preferred Stock (8%, $50 par, 10,000 shares authorized)

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $400,000

Common Stock ($1 stated value, 2,000,000 shares authorized)

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $1,000,000

Feb. 1, 2020 Cash Account 25,000

Sept. 3 Patent 5,000

Dec. 31 Ending balance $1,030,000

Paid-in Capital in Excess of Par—Preferred Stock

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $100,000

Paid-in Capital in Excess of Stated Value—Common Stock

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $1,450,000

Feb. 1, 2020 Cash Account 95,000

Sept. 3 Patent 30,000

Dec. 31 Ending balance $1,575,000

Retained Earnings

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $1,816,000

Dec. 31 Net Income 452,000

Dec. 31 Ending balance $2,268,000

Treasury Stock (10,000 common shares)

Date Accounts Titles Debit Credit

Jan. 1, 2020 Beginning balance $50,000

Apr. 14 2020 Cash Account $33,000

Nov. 10 2020 Cash Account 6,000

Dec. 31 2020 Ending balance $23,000

C. Stockholders' Equity accounts on December 31, 2020:

Preferred Stock (8%, $50 par, 10,000 shares authorized) $400,000

Common Stock ($1 stated value, 2,000,000 shares authorized) 1,030,000

Paid-in Capital in Excess of Par—Preferred Stock 100,000

Paid-in Capital in Excess of Stated Value—Common Stock 1,575,000

Retained Earnings 2,268,000

Treasury Stock (5,000 common shares) (23,000)

Step-by-step explanation:

Stockholders' Equity accounts on January 1, 2020:

Preferred Stock (8%, $50 par, 10,000 shares authorized) $400,000

Common Stock ($1 stated value, 2,000,000 shares authorized) 1,000,000

Paid-in Capital in Excess of Par—Preferred Stock 100,000

Paid-in Capital in Excess of Stated Value—Common Stock 1,450,000

Retained Earnings 1,816,000

Treasury Stock (10,000 common shares) 50,000