Question

Required information (The following information applies to the questions displayed below.] Permabilt Corp. was incorporated on January 1, 2019, and issued the following stock for cash: • 2,000,000 shares of no-par common stock were authorized; 750,000 shares were issued on January 1, 2019, at $35 per share. • 800,000 shares of $100 par value, 7.5% cumulative, preferred stock were authorized; 540,000 shares were issued on January 1, 2019, at $105 per share. • No dividends were declared or paid during 2019 or 2020. However, on December 22, 2021, the board of directors of Permabilt Corp. declared dividends of $15,000,000, payable on February 12, 2022, to holders of record as of January 8, 2022 Required: 1. Use the horizontal model for the issuance of common stock and preferred stock on January 1, 2019. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect.) Balance Sheet Liabilities Assets = Stockholders' Equity Net Incon †11

Answer 1

1. Journal entries and horizontal analysis of issuance of common stock and preferred stock: Credit($) Journal entries Accounts Cash Common stock-no par value Debit($) 2,62,50,000 2,62,50,000 5,67,00,000 Cash Additional paid in capital Preferred stock 5,40,00,000 27,00,000 II Horizontal analysis Balance sheet Assets Liabilities + Stockholder's Equity Cash 8,29,50,000 + Common stock 2,62,50,000 + Preferred stock 27,00,000 + Additional paid in capital 5,40,00,000 Income statement Net income Revenues Expenses 0 0 0

2. Cumulative dividend outstanding on preferred stock for year 2019 and 2020 is $12,000,000 (800,000 shares x $100 par value x 7.5% x 2 years) Allocation of dividend Stock type Number of shares Dividend per share Preferred stock Common stock (Balancing figure) Amount($) 1,20,00,000 30,00,000 5,40,000 5.56 1,50,00,000 Journal entry and horizontal analysis of declaration of dividend: Credit($) Journal entry Accounts Retained earnings Preferred Dividend payable Common dividend payable Debit($) 1,50,00,000 1,20,00,000 30,00,000 Horizontal analysis Assets Balance sheet Liabilities Preferred dividend payable 1,20,00,000 Common dividend payable 30,00,000 Stockholder's Equity Retained earnings -1,50,00,000 Net income = Income statement Revenues 0 Expenses 0 0

3. Journal entry and horizontal analysis of payment of dividend: Credit($) Journal entry Accounts Preferred dividend payable Common dividend payable Cash Debit($) 1,20,00,000 30,00,000 1,50,00,000 Horizontal analysis + Stockholder's Equity Assets -1,50,00,000 Balance sheet Liabilities Preferred dividend payable -1,20,00,000 Common dividend payable -30,00,000 Cash Net income = Income statement Revenues 0 Expenses 0 O