Question

Stockholders’ Equity: Transactions and Balance Sheet Presentation The stockholders’ equity of Summit Corporation at January 1 follows: 7 Percent preferred stock, $100 par value, 20,000 shares authorized; 5,000 shares issued and outstanding $500,000 Common stock, $15 par value, 100,000 shares authorized; 40,000 shares issued and outstanding 600,000 Paid-in capital in excess of par value-Preferred stock 24,000 Paid-in capital in excess of par value-Common stock 360,000 Retained earnings 325,000 Total Stockholders' Equity $1,809,000 The following transactions, among others, occurred during the year: Jan. 12 Announced a 3-for-1 common stock split, reducing the par value of the common stock to $5 per share. The authorization was increased to 300,000 shares. Mar. 31 Converted $40,000 face value of convertible bonds payable (the book value of the bonds was $43,000) to common stock. Each $1,000 bond converted to 130 shares of common stock. June 1 Acquired equipment with a fair market value of $70,000 in exchange for 500 shares of preferred stock. Sept. 1 Acquired 10,000 shares of common stock for cash at $13 per share. Oct. 12 Sold 1,500 treasury shares at $15 per share. Nov. 21 Issued 5,000 shares of common stock at $14 per share. Dec. 28 Sold 1,200 treasury shares at $11 per share. 31 Closed net income of $91,000 to the Retained Earnings account. Required Prepare journal entries for the given transactions and post them to the T-accounts. Do not prepare the journal entry for the Dec. 31 transaction, but post the appropriate amount to the Retained Earnings T-account. Determine the ending balances for the stockholders’ equity accounts. Prepare the stockholders’ equity section of the balance sheet at December 31.

Answer 1

Journal entries:
Date	Acc Title	Debit $	Credit $
12-Jan	No entry
31-Mar	Bonds payable	40000
	Common Stock		26000	130*40*5
	Paid in capital in excess of par-CS		14000
	(conversion of bonds into CS)
1-Jun	Equipment	70000
	Preferred Stock		50000	500*100
	Paid in capital in excess of par-PS		20000
	(equipment procured against preferred share issue)
1-Sep	Treasury Stock	130000		13*10000
	Cash		130000
	(purchased common stock as treasury stock @13)
12-Oct	Cash	22500		1500*15
	Treasury Stock		19500	1500*13
	Paid in capital in excess of par-TS		3000
	(sale of 1500 treasury stock @ 15)
21-Nov	Cash	70000		5000*14
	Common Stock		25000	5000*5
	Paid in capital in excess of par-CS		45000
	(issue of 5000 common stock @ 14)
28-Dec	Cash	13200		1200*11
	Paid in capital in excess of par-TS	2400
	Treasury Stock		15600	1200*13
	(sale of 1200 treasury stock @ 11)

T-Accounts:
DEBIT	AMOUNT $	CREDIT	AMOUNT $
Preferred Stock a/c
CB	550000	OB	500000
		1-Jun	50000
Common Stock a/c
CB	651000	OB	600000
		31-Mar	26000
		21-Nov	25000
Paid in capital in excess of par - PS a/c
CB	44000	OB	24000
		1-Jun	20000
Paid in capital in excess of par -CS a/c
CB	419000	OB	360000
		31-Mar	14000
		21-Nov	45000
Paid in capital in excess of par -TS a/c
28-Dec	2400	12-Oct	3000
CB	600
Retained Earnings a/c
CB	416000	OB	325000
		31-Dec	91000
Treasury Stock a/c
1-Sep	130000	12-Oct	19500
		28-Dec	15600
		CB	94900

Stockholders' Equity Section of Balance Sheet:
	Amount $
Preferred stock:
Authorised: 20000 Par value 100
Issued and outstanding 5500	550000
Common Stock:
Authorised: 300000 Par value 5
Issued and outstanding 130200	651000
Paid in capital in excess of par - PS	44000
Paid in capital in excess of par -CS	419000
Paid in capital in excess of par -TS	600
Retained Earnings	416000
Less:Treasury Stock	-94900
Stockholders' Equity	1985700