At the beginning of 2011, Greene, Inc., showed the following amounts in the stockholders equity section of

At the beginning of 2011, Greene, Inc., showed the following amounts in the stockholders’ equity section of its balance sheet:

Stockholders’ equity:

Capital stock, $1 par value, 1,000,000 shares authorized,

560,000 issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 560,000

Additional paid-in capital: capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,480,000

Total paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,040,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,040,000

The transactions relating to stockholders’ equity during the year are as follows:

Jan. 5 Declared a dividend of $1 per share to stockholders of record on January 31, payable on February 18.

Feb. 18 Paid the cash dividend declared on January 5.

Apr. 20 The corporation purchased 1,000 shares of its own capital stock at a price of $10 per share.

May 25 Reissued 500 shares of the treasury stock at a price of $12 per share.

June 15 Declared a 5 percent stock dividend to stockholders of record at June 22, to be distributed on June 30. The market price of the stock at June 15 was $11 per share.

(The 500 shares remaining in the treasury do not participate in the stock dividend.)

June 30 Distributed the stock dividend declared on June 15.

Aug. 12 Reissued 300 of the 500 remaining shares of treasury stock at a price of $9.75 per share.

Dec. 31 The Income Summary account, showing net income for the year of $1,750,000, was closed into the Retained Earnings account.

Dec. 31 The $560,000 balance in the Dividends account was closed into the Retained Earnings account.

Instructions

a. Prepare in general journal form the entries to record the above transactions.

b. Prepare the stockholders’ equity section of the balance sheet at December 31, 2011. Use the format illustrated in Exhibit 12–6 . Include a supporting schedule showing your computation of retained earnings at that date.

c. Compute the maximum cash dividend per share that legally could be declared at December 31, 2011, without impairing the paid-in capital of Greene,Inc.

Transcribed Image Text:

Exhibit 12-6 STOCKHOLDERS' EQUITY SECTION OF BALANCE SHEET Stockholders' Equity Capital stock: 5% convertible preferred, $100 par value, 3,000 shares authorized and issued. 300,000 Common stock, $10 par value, 100,000 shares authorized issued 30,800 (of which 1,000 are held in treasury) 308,000 Additional paid-in capital From issuance of common stock $580,000 From stock dividends Total paid-in capital Retained earnings Subtotal 112,000692.000 $1,300,000 780,400 $2,080,400 47,000 $2,033,400 Less: Treasury stock (1,000 shares at $47 per share) Total stockholders' equity