Question

Required information [The following information applies to the questions displayed below.] National League Gear has two classes of stock authorized: 6%, $20 par preferred, and $5 par value common. The following transactions affect stockholders' equity during 2021, National League's first year of operations: February 2 Issue 1.1 million shares of common stock for $31 per share. February 4 Issue 560,000 shares of preferred stock for $22 per share. June 15 Purchase 110,000 shares of its own common stock for $26 per share. August 15 Resell 82,500 shares of treasury stock for $41 per share. November 1 Declare a cash dividend on its common stock of $1.10 per share and a $672,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.) November 30 Pay the dividends declared on November 1.

Record These Journal Entries:

1) Record the issuance of 1.10 million shares of common stock for $31 per share.

2) Record the issuance of 560,000 shares of preferred stock for $22 per share.

3) Record the purchase of 110,000 shares of its own common stock for $26 per share.

4) Record the resell 82,500 shares of treasury stock for $41 per share.

5) Record the declaration of a cash dividend on its common stock of $1.10 per share and a $672,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.)

6) Record the dividends declared on November 1.

Answer 1

Question 1

S.No.	Date	Particulars	Debit	Credit
1	Feb-02	Cash A/C..Dr	34,100,000
		To Common Stock		5,500,000
		To Additional Paid in Capital		28,600,000
		(To Record Issue of Common Shares)
2	Feb 04	Cash A/C..Dr	12,320,000
		To Preferred Stock		11,200,000
		To Additional Paid in Capital		1,120,000
		(To record issue of Preferred Stock)
3	Jun 15	Treasury Stock A/C...Dr	2,860,000
		To Cash A/C		,2,860,000
		(Being repurchase of own issued Common Stock)
4	Aug 15	Cash A/C..Dr	3,382,500
		To Treasury Stock		2,145,000
		To Additional Paid in Capital		1,237,500
		(Being Sell of treasury stock )
5	Nov 01	Retained Earnings A/C..Dr	1,851,750
		To Dividend Payable - Common Stock		1,179,750
		To Dividend Payable - Preferred Stock		672,000
		(Being Cash Dividend Declared)
6	Nov 30	Dividend Payable - Common Stock	1,179,750
		Dividend Payable - Preferred Stock	672,000
		To Cash A/C		1,851,750
		(Being Dividends paid)

Dividends on Common Stock = 1,072,500 Shares * $ 1.1 per Share = $ 1,179,750

Requirement 2

NATIONAL LEAGUE GEAR

Balance Sheet

Stockholders Equity

December 31,2021

Particulars	Amount
Stockholders Equity
Common Stock	55,00,000
Preferred Stock	1,12,00,000
Additional Paid in Capital	3,09,57,500
Total Paid In Capital	4,76,57,500
Retained Earnings	30,08,250
Treasury Stock	-7,15,000
Total Stockholders Equity	4,99,50,750

Total Stockholders Equity = Total Paid in Capital + Retained Earnings + Treasury Stock

Total Paid In Capital = Common Stock + Preferred Stock + Additional Paid in Capital

Retained Earnings = Net Income - Common Stock Dividend - Preferred Stock Dividend

Treasury Stock = Purchase of Treasury Stock - Treasury Stock Reissued

Additional Paid in Capital = 28,600,000 + 1,120,000 + 1,237,500 = $ 3,09,57,500

Treasury Stock = 2,860,000 - 2,145,000 = $ 715,000

Retained Earnings = 4,860,000 - 18,51,750 = $ 30,08,250