Question

Major League Apparel has two classes of stock authorized: 5%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2021, its first year of operations:

January		2		Issue 100,000 shares of common stock for $69 per share.
February		14		Issue 59,000 shares of preferred stock for $11 per share.
May		8		Purchase 10,000 shares of its own common stock for $59 per share.
May		31		Resell 5,000 shares of treasury stock for $64 per share.
December		1		Declare a cash dividend on its common stock of $0.30 per share and a $29,500 (5% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.)
December		30		Pay the cash dividends declared on December 1.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $489,000. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

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Major League Apparel

Workings
Common Stock	Number	Note
Shares Issued on 2nd Jan	100,000.00	A
Sale price	69.00	B
Par Value per share	1.00	C
Paid in capital in excess of par- Common Stock	68.00	D=B-C
Sale value	6,900,000.00	E=B*A
Par Value	100,000.00	F=C*A
Paid in capital in excess of par- Common Stock	6,800,000.00	G=D*A
Common Stock- Dividend
Shares Issued on 2nd Jan	100,000.00	See A
Less: Reacquired on May 8	10,000.00
Add: Sold reacquired shares on May 31	5,000.00
Number of shares on which dividend paid	95,000.00	H
Dividend per share	1.00	I
Common Stock- Dividend	95,000.00	J=H*I
Treasury Stock	Number
Number of shares reacquired on May 8	10,000.00	K
Price paid per share	59.00	L
Total amount paid	590,000.00	M=K*L
Less: Reissued shares on May 31	5,000.00	N
Number of shares as Treasury Stock as on Dec 31	5,000.00	O=K-N
Price paid per share	59.00	See L
Value of Treasury Stock as on Dec 31	295,000.00	P=O*L
Paid in capital in excess of par- Common Stock
From issue of shares on 2nd Jan	6,800,000.00	See G
Reissued 5,000 shares @ $ 64 on May 31	320,000.00	Q
Less: Price paid for 5,000 shares @ $ 59 on May 8	295,000.00	R
Paid in capital in excess of par- Common Stock	25,000.00	S=Q-R
Closing Paid in capital in excess of par- Common Stock	6,825,000.00	O=G+S
Preferred Stock	Number	Note
Shares Issued on Feb 2	59,000.00	T
Sale price	11.00	U
Par Value per share	10.00	V
Paid in capital in excess of par- Preferred Stock	1.00	W=U-V
Sale value	649,000.00	X=T*U
Par Value	590,000.00	Y=T*V
Paid in capital in excess of par- Preferred Stock	59,000.00	Z=T*W
Retained Earnings
Income Summary	489,000.00
Less:
Preferred Stock- Dividend	29,500.00
Common Stock- Dividend	95,000.00
Closing Retained Earnings	364,500.00	AA

Journal Entry
Date	Account	Debit $	Credit $	Note
2-Jan	Cash	6,900,000.00		See E
	Common Stock		100,000.00	See F
	Paid in capital in excess of par- Common Stock		6,800,000.00	See G
14-Feb	Cash	649,000.00		See T
	Preferred Stock		590,000.00	See U
	Paid in capital in excess of par- Preferred Stock		59,000.00	See V
8-May	Treasury Stock	590,000.00
	Cash		590,000.00	See M
31-May	Cash	320,000.00		See Q
	Treasury Stock		295,000.00	See R
	Paid in capital in excess of par- Common Stock		25,000.00	See S
1-Dec	Retained Earnings	124,500.00
	Preferred Stock- Dividend Payable		29,500.00	Given in the sum
	Common Stock- Dividend Payable		95,000.00	See J
31-Dec	Preferred Stock- Dividend Payable	29,500.00		Given in the sum
	Common Stock- Dividend Payable	95,000.00		See J
	Cash		124,500.00
31-Dec	Income Summary	489,000.00		Given in the sum
	Retained Earnings		489,000.00

Stockholder's Equity
Paid-In Capital:	Amount $	Note
Preferred Stock (5%, $ 10 par,
59,000 shares issued and outstanding)	590,000.00	See Y
Common Stock ($ 1 par,
100,000 shares issued and outstanding)	100,000.00	See F
Paid in capital in excess of par- Preferred Stock	59,000.00	See Z
Paid-In Capital in Excess of Par-Common Stock	6,825,000.00	See O
Retained Earnings	364,500.00	See AA
Treasury stock
(5,000 shares at $ 59 par share)	(295,000.00)	See P
Total Stockholder's Equity	7,643,500.00