Buffalo Company reported the following amounts in the stockholders' equity section of its...

Question:

Buffalo Company reported the following amounts in the stockholders' equity section of its December 31, 2016, balance sheet.

Preferred stock, 9%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000
Common stock, $5 par (92,000 shares authorized, 18,400 shares issued) $92,000
Additional paid-in capital $112,000
Retained earnings $462,000
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Total $846,000
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During 2017, Buffalo took part in the following transactions concerning stockholders' equity

1. Paid the annual 2016 $9 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2016.

2. Purchased 1,500 shares of its own outstanding common stock for $44 per share. Buffalo uses the cost method.

3. Reissued 700 treasury shares for land valued at $31,700.

4. Issued 540 shares of preferred stock at $106 per share.

5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $43 per share.

6. Issued the stock dividend.

7. Declared the annual 2017 $9 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2018.

Prepare journal entries to record the transactions described above.

No. Account Titles and Explanation Debit Credit
1. Dividends Payable- Preferred Stock 162,000
Dividends Payable - Common Stock 36,800
Cash 53,000
2. Treasury Stock 66,000
Cash 66,000
3. Land 31,700
Treasury Stock 30,800
Paid-in Capital from Treasury Stock 900
4. Cash 57,240
Preferred Stock 54,000
Paid-in Capital in Excess of Par - Preferred Stock 3,240
5. Retained Earnings 75,680
Common Stock Dividend Distributable 8,800
Paid-in Capital in Excess of Par-Common Stock 66,880
6. Common Stock Dividend Distributable 8,800
Common Stock 8,800
7. Retained Earnings
Dividends Payable - Common Stock
Dividends Payable - Preferred Stock

Dividends:

Dividends are capital distributions made by companies in order to compensate investors. Dividends are first paid to preferred shareholders. Any remaining dividend is paid to common shareholders. Preferred dividends may be cumulative or noncumulative in nature. Cumulative dividends accumulate until they are paid off to preferred shareholders.

Answer and Explanation:

No. Account Titles Debit Credit Explanation
1. Dividends Payable- Preferred Stock 16,200 Remove payable upon distribution. $9 per share x 1,800 shares issued = $16,200
Dividends Payable - Common Stock 36,800 Remove payable upon distribution. $2 per share x 18,400 shares issued = $36,800
Cash 53,000 Record outflow of cash
2. Treasury Stock 66,000 Record treasury stock at cost. $44 per share x 1,500 shares
Cash 66,000 Record outflow of cash
3. Land 31,700 Record land at fair value
Treasury Stock 30,800 Remove treasury stock at cost. $44 per share x 700 shares
Paid-in Capital from Treasury Stock 900 Record value received in excess of cost. $31,700 - $30,800
4. Cash 57,240 Record inflow of cash from issuance. $106 per share x 540 shares
Preferred Stock 54,000 Record preferred shares at par. $100 per share x 540 shares
Paid-in Capital in Excess of Par - Preferred Stock 3,240 Record amount received in excess of par value. $57,240 - $54,000
5. Retained Earnings 75,680 Transfer market value of stock to retained earnings. 10% x (18,400 - 1,500 + 700) x $43
Common Stock Dividend Distributable 8,800 Record liability at par value. $5 par x ((18,400 - 1,500 + 700) x 10%)
Paid-in Capital in Excess of Par-Common Stock 66,880 Record amount to be distributed over par. $75,680 - $8,800
6. Common Stock Dividend Distributable 8,800 Remove liability upon distribution
Common Stock 8,800 Record common stock at par
7. Retained Earnings $59,780 Deduct dividends from retained earnings
Dividends Payable - Common Stock $38,720 $2 x ((18,400 - 1,500 + 700) x 1.1)
Dividends Payable - Preferred Stock $21,060 $9 x (1,800 + 540)

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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