In groups, you will provide the journal entry to record issuing of
In groups, you will provide the journal entry to record issuing of common stock shares by a corporation, record issuing of cumulative preferred stock, and record a declaration of stock split.
Group Project:
Company A
During 2013, Company A has the following transactions involving its common and preferred stock:
- Issued 20,000 shares of $8 par common stock for $26 a share; brings total shares outstanding to 50,000 shares
- Issued 6,000 shares of $100 par, 6%, cumulative preferred stock for $150 per share
- When market value of the common stock reached $15 a share, Company A declared a 3-for-1 stock split, reducing the par value to $188 per share
The following is required:
- Prepare a journal entry for each transaction.
- Discuss the right of shareholders of capital stock for company A that they are entitled to.
- Company A is formed as a corporation and therefore, its shareholders have limited liability. Limited liabilitymeans that stockholders can only lose the amount of their investment. Discuss how this limited liability affects a corporation.
Company B
Company B began 2013 with a $110,000 balance in retained earnings. The following events occurred during the year:
- Cash dividends of $18,500 were declared.
- 4,500 shares of callable preferred stock were recalled and retired for a price of $225 per share. The stock was originally issued for $150 per share.
- Net income was $550,000.
- A material error in net income for a previous period was corrected. The correction of the error decreased retained earnings by $18,500 after a related income tax.
The following is required:
- Prepare the statement of retained earnings for the year ended 2013, and any note disclosures separately.
- Discuss the restriction of retained earnings that the board of directors can impose and why it would be necessary.
