Question

• 1,400,000 shares of no-par common stock were authorized; 327,000 shares were issued on January 1, 2016, at $30 per share.
• 426,000 shares of $90 par value, 10.00% cumulative, preferred stock were authorized, and 130,000 shares were issued on January 1, 2016, at $133 per share.
• Net income for the years ended December 31, 2016, 2017, and 2018, was $4,680,000, $7,040,000, and $9,160,000, respectively.
• No dividends were declared or paid during 2016 or 2017. However, on December 17, 2018, the board of directors of Permabilt Corp. declared dividends of $5,680,000, payable on February 9, 2019, to holders of record as of January 4, 2019.

1. Use the horizontal model for the issuance of common stock and preferred stock on January 1, 2016. (Use amounts with + for increases and amounts with – for decreases.)

2. Use the horizontal model for the declaration of dividends on December 17, 2018. (Use amounts with + for increases and amounts with – for decreases.)

3. Use the horizontal model for the payment of dividends on February 9, 2019. (Use amounts with + for increases and amounts with – for decreases.)

Prepare the journal entries to record each of the below transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. The issuance of common stock and preferred stock on January 1, 2016.

2. The declaration of dividends on December 17, 2018.

3. The payment of dividends on February 9, 2019.

Answer 1

Solution:

Horizontal Statement Model
Event	Balance Sheet											Income Statement					Statement of Cash Flows
	Assets	=	Liabilities	+	Stockholder's Equity							Revenue	-	Expense	=	Net Income
	Cash	=	Dividend Payable	+	Common Stock	+	Preferred Stock	+	Paid in capital in excess of par - Preferred stock	+	Retained Earnings
1	$27,100,000.00	=	$0.00	+	$9,810,000.00	+	$11,700,000.00	+	$5,590,000.00	+	$0.00	$0.00	-	$0.00	=	$0.00	$27,100,000.00	FA
2	$0.00	=	$5,680,000.00	+	$0.00	+	$0.00	+	$0.00	+	-$5,680,000.00	$0.00	-	$0.00	=	$0.00	$0.00	NA
3	-$5,680,000.00	=	-$5,680,000.00	+	$0.00	+	$0.00	+	$0.00	+	$0.00	$0.00	-	$0.00	=	$0.00	-$5,680,000.00	FA

Journal Entries
Date	Particulars	Debit	Credit
1-Jan-16	Cash Dr	$27,100,000.00
	To Common Stock		$9,810,000.00
	To Preferred stock		$11,700,000.00
	To Paid in capital in excess of par - Preferred stock		$5,590,000.00
	(To record issue of common and preferred stock)
17-Dec-18	Dividends Dr	$5,680,000.00
	To Dividend payable		$5,680,000.00
	(To record dividend declared)
9-Feb-19	Dividend Payable Dr	$5,680,000.00
	To Cash		$5,680,000.00
	(To record dividend payment)