Chapter 10, Problem 48AP

Analyzing stockholders’ equity (Learning Objectives 2. 3. 4, & 7) 20-25 min.

Gamma Corporation was organized in 2017. At December 31, 2017, Gamma Corporation’s balance sheet reported the following stockholders’ equity:

Stockholders’ Equity
Paid-in Capital:
Preferred Stock, 4%, $5 par, 60,000 shares authorized,
none issued	$0
Common Stock, $2 par, 110,000 shares authorized,
11,000 shares issued and outstanding	22,000
Paid-in Capital in Excess of Par—Common	68,750
Total Paid-in Capital	$90,750
Retained Earnings	73,000
Total Stockholders’ Equity	$163,750

Requirement

Answer the following questions and make journal entries as needed.

1. 1. What does the 4 percent mean for the preferred stock? After Gamma Corporation issues preferred stock, how much in annual cash dividends would it expect to pay on 8,000 shares?
2. 2. At what average price per share did Gamma Corporation issue the common stock during 2017?
3. 3. Were first-year operations profitable? Give your reason.
4. 4. During 2018, the company completed the following selected transactions. Journalize each transaction. Explanations are not required.
   1. a. Issued for cash 1,000 shares of preferred stock at par value
   2. b. Issued for cash 2,200 shares of common stock at a price of $9.50 per share