Question

On December 28, Year One, the Pickins Corporation was formed. The articles of incorporation authorize 5 million shares of common stock carrying a $1 par value, and 1 million shares of $5 par value preferred stock. On January 1, Year Two, 2 million shares of common stock are issued for $15 per share. Also on January 1, 500,000 shares of preferred stock are issued at $30 per share. a. Prepare journal entries to record these transactions on January 1. b. On March 9, Year Two, the Pickins Corporation repurchases 100,000 common shares as treasury stock paying a price of $13 per share. During August of that year, all 100,000 treasury shares are reissued at $16 per share. Prepare journal entries to record these transactions. c. On November 3, Year Two, Pickins issues a 30 percent stock dividend on all outstanding shares of common stock when the market price is $50 per share. On December 1, Year Two, Pickens declares a $0.75 per share cash dividend on common stock and a $2.00 per share cash dividend on preferred stock. Payment is scheduled for December 20, Year Two, to shareholders of record on December 10, Year Two. Prepare journal entries to record the declaration and distribution of these stock and cash dividends.

Answer 1

JOURNAL ENTRIES
						IN LAKHS
YEAR 2					AMOUNT	AMOUNT
1-Jan	BANK A/C DR				300
	TO COMMON STOCK A/C					300
	(BEING COMMON STOCK ISSUED)
1-Jan	BANK A/C DR				150
	TO PREFERRED STOCK A/C					150
	(BEING PREFERRED STOCK ISSUED)
9-Mar	TREASURY STOCK				13
	TO BANK					13
	(BEING COMMON STOCK PURCHASED AS TREASURY STOCK)
AUG	BANK A/C DR				16
	TO TREASURY STOCK					13
	TO COMMON STOCK					3
	(BEING TREASURY STOCK REISSUED)
3-Nov	RETAINED EARNINGS A/C DR				15
	TO COMMON STOCK DIVIDEND DISTRIBUTABLE A/C					15
	(BEING STOCK DIVIDEND ISSUED)
	COMMON STOCK DIVIDEND DISTRIBUTABLE A/C DR				15
	TO COMMON STOCK A/C					15
1-Dec	INCOME STATEMENT A/C DR				17.5
	TO BANK					17.5
	(BEING DIVIDEND PAID ON COMMON AND PREFERRED STOCK)