Answer:
Diamondback Welding & Fabrication Corporation
Journal Entries:
Feb. 2
Debit Treasury Common Stock $700,000
Credit Cash Account $700,000
To record the repurchase of 87,500 shares of common stock for $8 per share.
May 16:
Debit Cash Account $605,000
Credit Treasury Common Stock $495,000
Credit Paid-In Capital in Excess of Par-Common Stock $110,000
To record the resale of 55,000 shares of treasury stock at $11 each.
May 7:
Debit Cash Account $1,680,000
Credit Preferred 2% Stock $1,600,000
Credit Paid-in In Excess of Par - Preferred Stock $80,000
To record the issue of 20,000 shares of preferred 2% stock at $84.
June 27:
Debit Cash Account $5,200,000
Credit Common Stock $3,600,000
Credit Paid-in In Excess of Par - Common Stock $1,600,000
To record the issue of 400,000 shares of common stock at $13.
Aug. 30:
Debit Cash Account $135,000
Debit Paid-in Excess of Par - Common stock $27,000
Credit Treasury Stock $162,000
To record the reissue of 18,000 shares of treasury common stock for $7.50.
Dec. 5:
Debit Cash Dividends- Preferred Stock $128,000
Debit Cash Dividends - Common Stock $106,775
Credit Dividends Payable $234,775
To record the declaration of dividends.
Dec. 31:
Debit Dividends Payable $234,775
Credit Cash Account $234,775
To record the payment of dividends.
Explanation:
Calculation of Shares Outstanding and Dividends:
a) Preferred Stock:
Issued at beginning = 60,000
Issued May 7 = 20,000
Total in issue 80-000
b) Preferred Dividend = $ 128,000 (80,000 x $1.60)
c) Common Stock:
Issued at beginning = 1,750,000
Feb. 2 Treasury repurchase (87,500)
Mar. 16 Treasury reissue 55,000
Jun. 6 Issue of new shares 400,000
Aug. 30 Treasury reissue 18,000
Total outstanding 2,135,500
d) Common Stock Dividend = $106,775 (2,135,500 x $0.05)
e) Treasury Stock are shares repurchased by the company from investors. The account is a contra account to the Common Stock Account. Movements above and below par value in the treasury stock account are accounted for in the Additional Paid-in Capital (Paid-in In Excess of Par - Common Stock) account using the par value method. The second method is the cost method, where all the movements above and below par value are recorded in the Treasury Stock account.
Treasury Stock is termed as the shares that are repurchased by the company from investors. Movements above and below par value in the treasury stock account are accounted for in the Additional Paid-in Capital account using the par value method.
The entries have been attached below.
Calculation of Shares Outstanding and Dividends:
a) Preferred Stock:
Issued at beginning = 60,000
Issued May 7 = 20,000
Total in issue = 80-000
[tex]b) \text{Preferred Dividend} = \$ 128,000 (80,000 \times $1.60)[/tex]
c) Common Stock:
Issued at beginning = 1,750,000
Feb. 2 Treasury repurchase= (87,500)
Mar. 16 Treasury reissue = 55,000
Jun. 6 Issue of new shares =400,000
Aug. 30 Treasury reissue = 18,000
Total outstanding = 2,135,500
[tex]d) \text{Common Stock Dividend} = \$106,775 (2,135,500 \times \$0.05)[/tex]
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