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|
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|
|Paid-in Capital from Treasury Stock||900|
|Paid-in Capital in Excess of Par - Preferred Stock||3,240|
|Common Stock Dividend Distributable||8,800|
|Paid-in Capital in Excess of Par-Common Stock||66,880|
|6.||Common Stock Dividend Distributable||8,800|
|Dividends Payable - Common Stock|
|Dividends Payable - Preferred Stock|
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:
|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)|
Learn more about this topic:
from Finance 101: Principles of FinanceChapter 16 / Lesson 1