Question

1)Towson Corp., was organized on January 2, 2018. During the first year of operation, Towson issued 50,000 shares of $4 par value common stock at a price of $45 cash per share.  On December 31, 2018, Towson reported Net Income of $250,000 and paid $50,000 cash dividends. Use this information to determine the dollar amounts that Towson will report on its year end Balance Sheet for Paid in Capital Common Stock in Excess of par.

2)Towson Corp., had 3,000 shares of $100 par, 3% cumulative preferred stock as of January 1, 2018. No additional shares of preferred stock were issued during fiscal years 2018 & 2019.   Dividends were paid to common shareholders in 2017 but no shareholders were paid dividends in 2018.  A total of $75,000 of dividends was paid in 2019. Use this information to determine the total dollar amount of dividends that was paid to common shareholders during fiscal year 2019.

3)On January 2, 2018, the first year of operations, Brunswick Corp., issued 15,000 shares of $10 par value common stock for $15 per share.  On July 1, 2018, 2,000 of these shares were reacquired for $18 each. On September 1, 2018 Brunswick Corp. reissued 500 shares of its treasury stock for $24 per share. No other stock transactions occurred during the rest of fiscal year 2018. Use this information to determine the dollar amount that Brunswick will report on its fiscal year 2018 Balance Sheet for Paid in Capital Treasury Stock.

4)On August 1, 2018, Towson Corp., declared a 10% stock dividend on its common stock when the market value of the common stock was $14 per share. The balance in the common stock account, before the stock dividend was declared, was $1,000,000. The par value of all common stock is $10. What is the total dollar amount credited to additional paid in capital - common stock on August 1, 2018?

Answer 1

1) Paid in Capital Common Stock in Excess of par = 50000 x ($45 - $4) = 50000 x $41 = $2,050,000

2) Annual dividend on preferred stock = 3000 x $100 x 3% = $9,000

Dividends paid to preferred shareholders in 2019 = Current year dividends + Dividends in arrears for 2018 = $9,000 + $9,000 = $18,000

Dividends paid to common shareholders in 2019 = $75,000 - $18,000 = $57,000

3) Paid in Capital Treasury Stock = (500 x $24) – (500 x $18) = $12,000 - $9,000 = $3,000

4) Number of common shares outstanding on August 1, 2018 = $1,000,000/$10 = 100,000

Number of shares of stock dividend = 10% x 100,000 = 10,000

The journal entry on August 1, 2018 will debit stock dividend by 10,000 x $14 = $140,000, credit common stock dividends distributable by 10,000 x $10 = $100,000, and credit additional paid in capital – common stock by 10,000 x ($14 - $10) = $40,000.

Thus, amount credited to additional paid in capital – common stock on August 1, 2018 is $40,000.