Question 1P (Equity Transactions and Stateme... [FREE SOLUTION]

Chapter 15: Question 1P (page 818)

(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of $10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at $16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the
following assets: equipment with a fair value of $50,000; a factory
building with a fair value of $160,000; and land with an
appraised value of $270,000.
July 29 Purchased 1,800 shares of common stock at $17 per share. (Use cost
method.)
Aug. 10 Sold the 1,800 treasury shares at $14 per share.
Dec. 31 Declared a $0.25 per share cash dividend on the common stock and
declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a $175,700 net
income.
Instructions
Record the journal entries for the transactions listed above.
Prepare the stockholders鈥� equity section of Phelps Corporation鈥檚 balance sheet as of December 31, 2017.

Short Answer

Expert verified

The total amount of debit and credit side of the Journal is$1,073,900and the totalshareholders鈥� equity is$900,300

Step by step solution

Meaning of Shareholder Equity

Stockholders鈥� equity refers to the sum of capital and retained earnings on a balance sheet.Stockholders鈥� Equity also represents the difference between assets and liabilities.

Preparing Journal Entries

S.no.	Particular	Debit $	Credit $
January 11	Cash	320,000
	Common Stock		200,000
	Paid-in Capital in Excess of Par-common Stock		120,000
	To record the issue of stock.

February 1	Equipment	50,000
	Building	160,000
	Land	270,000
	Preferred Stocks		400,000
	Paid-in Capital in Excess of Par-preferred Stock		80,000
	To record the issue of stock.

July 29	Treasury Stock	30,600
	Cash		30,600
	To record the issue of shares.

August 10	Cash	25,200
	Retained Earnings	5,400
	Treasury Stock		30,600
	To record the sale of treasury stock.

Note: - The debit is made to Retained Earnings because no Paid-in Capital from Treasury Stock exists.

S.no.	Particular	Debit $	Credit $
December 31	Retained earnings	37,000
	Dividend Payable		37,000
	To record the declaration of dividend.

Calculation of Dividend Payable

$\begin{array}{rcl} Common stock cash dividend & = & Common Shares 脳 Dividend Price \\ = & 20, 000 脳 $ 0.25 \\ = & $ 5, 000 \end{array}$

$\begin{array}{rcl} Preferred cash dividend & = & Preferred share 脳 Par Value \\ = & 4, 000 脳 100 脳 8 % \\ = & $ 32, 000 \end{array}$

$\begin{array}{rcl} Total cash dividend & = & Common Stock Dividend + Preferred Cash dividend \\ = & $ 5, 000 + $ 32, 000 \\ = & $ 37, 000 \end{array}$

S.no.	Particular	Debit $	Credit $
December 31	Income Summary	175,700
	Retained Earnings		175,700
	To record the closing of income summary.

Preparing Stockholders’ Equity

PHELPS CORPORATION

Stockholders鈥� Equity

December 31, 2014

Capital Stock

Preferred stock-par value $100 per share,

8% cumulative and nonparticipating,5,000

Shares authorized,4,000 shares issued and

outstanding

$400,000

Common stock 鈥損ar value $10 per share,

50,000 shares authorized,

20,000 shares issued and outstanding

Total capital stock

200,000

600,000

Additional paid-in-capital

In excess of par-preferred $ 80,000

In excess of par-common 120,000

Total paid-in capital

200,000

800,000

Retained Earnings

133,300

Total stockholders鈥� Equity

$933,300

Calculation of Retained Earnings

$\begin{array}{rcl} Total amount of retained earnings & = & Net income - Retained easrings - Dividend payable \\ = & $ 175, 700 - $ 5, 400 - $ 37, 000 \\ = & $ 133, 300 \end{array}$

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Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued)	\)200,000
Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued)	100,000
Additional paid-in capital	125,000
Retained earnings	450,000
Total	\)875,000

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Short Answer

Step by step solution

Meaning of Shareholder Equity

Preparing Journal Entries

Preparing Stockholders’ Equity

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