a. Explanation Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. 1. Entry at the date of issue of common stock: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Cash (Working note) 12,028,000 …..Common stock ( $ 1 × 400 , 000 ) 400,000 …..Additional paid in capital in excess of par common 11,628,000 (being common stock issued) Table (1) Since, cash is an asset for the company, it is increased. Hence, cash account is debited. Since, common stock is a liability for the company, it is increased. Hence, common stock account is credited. Since, additional paid in capital is the balancing figure. Hence, additional paid in capitalin excess of par common stock account is credited. 2. Entry at the date of issue of preferred stock : Date Account Title and Explanation Post ref. Debit ($) Credit ($) Cash ( $ 40 × 500 , 000 ) 20,000,000 …..Preferred stock ( $ 10 × 500 , 000 ) 5,000,000 …..Additional paid in capital in excess of par preferred 15,000,000 (being preferred stock issued ) Table (2) Since, cash is an asset for the company, it is increased. Hence, cash account is debited. Since, preferred stock is a liability for the company, it is increased. Hence, common stock account is credited. Since, additional paid in capital is the balancing figure. Hence, additional paid in capitalin excess of par common stock account is credited. 3. Entry related to purchase of treasury shares: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Treasury shares ( $ 32 × 220 , 000 ) 7,040,000 Cash 7,040,000 (being purchase of treasury stock recorded) Table (3) Since, treasury shares is liability for the company, it is decreased. Hence it is debited. Since, cash is an asset of the company, it is decreased. Hence, cash account is credited. 4. Entry for the declaration of dividend to preferred of first half: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Dividend preferred ( 6 % × $ 5 , 000 , 000 ) / 2 150,000 Dividend payable- preferred 150,000 (being preferred dividend declared for first half) Table (4) Since, dividend is an expense for the company, so it is increased. Hence, dividend preferred account is debited. Since, dividend payable is a liability for the company, it is increased. Hence, dividend payablepreferred account is credited. Entry for the declaration of dividend to common of first half: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Dividend common ( $ 450 , 000 − $ 150 , 000 ) 300,000 Dividend payable- common 300,000 (being common stock dividend declared) Table (5) Since, dividend is an expense for the company, so it is increased. Hence, dividend preferred account is debited. Since, dividend payable is a liability for the company, it is increased. Hence, dividend payablecommon account is credited. 5. Entry to record sold of treasury shares: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Cash ( 105 , 000 × $ 44 ) 4,620,000 Treasury stock (working note) 2,358,000 Additional paid in capital in excess of treasury (Balancing figure) 2,262,000 (being sold of treasury recorded) Table (6) Since, cash is an asset for the company, it is increased. Hence, cash account is debited. Since, treasury shares is liability for the company, it is increased. Hence it is credited. Since, additional paid in capital is the balancing figure. Hence, additional paid in capitalin excess of treasury stock account is credited. 6. Entry on the date of payment of cash dividend: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Dividend payable- preferred 150,000 Dividend payable- common 300,000 …..Cash 450,000 (being dividend payments made in cash) Table (7) Since, dividend payable is a liability for the company, it is decreased. Hence, dividend payablepreferred account is debited. Since, dividend payable is a liability for the company, it is decreased. Hence, dividend payablecommon account is debited. Since, cash is an asset of the company, it is decreased. Hence, cash account is credited. 7. Entry to record net income of current year: Date Account Title and Explanation Post ref. Debit ($) Credit ($) Net income 3,180,500 … b. To determine To prepare: The shareholders equity section for the year ended balance sheet with necessary t-accounts.

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ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The sto…

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 15, Problem 15.4P

To determine

To prepare: The journal entries to record the transactions.

To determine

To prepare: The shareholders equity section for the year ended balance sheet with necessary t-accounts.

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Analysis of stockholders' equity accounts (L.O. 3, 4, 5) The following selected information relates to the Hastings Corporation at year end: Preferred stock, ?% cumulative, $7.50 par, 100,000 shares authorized, ? shares issued and outstanding $ 600,000 Paid-in capital in excess of par: preferred Common stock, $? stated value, 700,000 shares authorized, 500,000 shares issued and outstanding Paid-in capital in excess of stated value: common Loans payable Retained earnings Total stockholders' equity Total legal capital ? 2,500,000 7,500,000 150,000 ? 12,072,000 ? The preferred stock was issued at an average price per share of $7.90. There were no dividends in arrears on January 1 or December 31. Distributions of $95,000 were made throughout the year, with common stockholders receiving $29,000. Instructions Determine the six unknowns of the Hastings Corporation.

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Intermediate Accounting (2nd Edition)

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The journal entries to record the transactions.

Solution Summary: The author explains journalizing as the process of recording the transactions of an organization in a chronological order.