The stockholders’ equity accounts of Castle Corporation on January 1, 2015, were as follows.
Preferred Stock (8%, $50 par, cumulative, 10,000 shares authorized) $ 400,000
Common Stock ($1 stated value, 2,000,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par—Preferred Stock 100,000
Paid-in Capital in Excess of Stated Value—Common Stock 1,450,000
Retained Earnings 1,816,000
Treasury Stock (10,000 common shares) 50,000
During 2015, the corporation had the following transactions and events pertaining to its stockholders’ equity.
Feb. 1 Issued 25,000 shares of common stock for $120,000.
Apr. 14 Sold 6,000 shares of treasury stock—common for $33,000.
Sept. 3 Issued 5,000 shares of common stock for a patent valued at $35,000.
Nov. 10 Purchased 1,000 shares of common stock for the treasury at a cost of $6,000.
Dec. 31 Determined that net income for the year was $452,000.
No dividends were declared during the year.
Instructions
a) Journalize the transactions and the closing entry for net income.
b) Enter the beginning balances in the accounts, and post the journal entries to the stockholders’ equity accounts. (Use J5 for the posting reference.)
c) Prepare a stockholders’ equity section at December 31, 2015, including the disclosure of the preferred dividends in arrears. Stockholder’s equity should equal $5,350,000
| 1 | Feb. 1 Issued 25,000 shares of common stock for $120,000 | ||
| Dr Cash | 120,000 | ||
| Cr Paid in capital in excess of stated value-common stock | 95000 | ||
| Cr Common Stock | 25000 | ||
| 2 | Apr. 14 Sold 6,000 shares of treasury stock-common for $33,000 | ||
| 50,000 / 10,000 = $5 per share | |||
| Dr Cash | 33,000 | ||
| Cr Common Treasury Stock | 30,000 | ||
| Paid in capital in from sale of treasury stock 3,000 | |||
| 3 | Sept. 3 Issued 5,000 shares of common stock for a patent valued at $35,000 |
||
| Dr Patent | 35,000 | ||
| Cr Paid in capital in excess of stated value-common stock | 30,000 | ||
| Cr Common Stock | 5,000 | ||
| 4 | Nov. 10 Purchased 1,000 shares of common stock for the treasury at a cost of $6,000 | ||
| Dr Treasury Stock | 6,000 | ||
| Cr Cash | 6,000 | ||
| 5 | Dec. 31 Determined that net income for the year was | ||
| Dr Income Summary | $452,000 | ||
| Cr Retained Earnings | $452,000 |
Preferred stock
(8%,$50 par,cumulative,10,000 shares authorized . . . . . . . . . . . . .$ .400,000
Common stock
($1 stated value, 2,000,000 shares authorized 1,030,000 issued . . . 1,030,000
Paid in capital in excess of par-preferred stock . . . . . . . . . . . . . . . . .100,000
Paid in capital in excess of stated value-common stock . . . . . . . . . 1,575,000
Paid in capital in from sale of treasury stock . . . . . . . . . . . . . . . . . . . . 3,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,268,000
Less:
Treasury stock (5,000 common shares) . . . . . . . . . . . . . . . . . . . . . . .26,000
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,350,000
Note to Financial Statements: Preferred dividends of $32,000 are in arrears
