PROBLEM 11-25A Recording stock transactions and cash dividends across two accounting cycles Sun Corporation received a charter that authorized the issuance of 100,000 shares of $10 par common stock and 50,000 shares of $50 par, 5 percent cumulative preferred stock. Year 1 (event details have been included within the general journal): Date Sun Corporation - General Journal (Year 1) Account Titles Debit Credit Jan 5: Sold 6,000 shares of $10 par common stock for $15 per share. Jan. 5 Cash (6,000 x $15) Common Stock, $10 par 90,000 60,000 30,000 PIC in Excess of Par-CS Jan 12: Sold 1,000 shares of the 5 percent preferred stock for $55 per share. Jan. 12 1800x50 Cash (1,000 x $55) Preferred Stock, Stated Value PIC Stated Value, P/S 55,000 Apr. 5: Sold 30,000 shares of the $10 par common stock for $21 per share. Apr. 5 Cash (30.000 x 21) Common Stock, Par (30,000 10) 630,000 PIC Par, CS 11 100, 30] 50,000 5,000 300,000 330,000 Dec 31: During the year, earned $150,000 cash rev. & paid $88,000 cash for oper. expenses. Dec. 31 150,000 Cash Service Revenue Dec. 31 Operating Expenses Cash 150,000 88,000 88,000 Dec. 31: Declared the cash dividend on the oustanding shares of preferred stock for Year 1. the dividend will be paid on February 15 to the stockholders of record on January 10, Year 2. Dec. 31 (See next page for Year 1 Closing Entries) Dec. 31 Service Revenue Retained Earnings Dec. 31 Retained Earnings Operating Expenses Dec. 31 Retained Earnings Dividends Year 1 Closing Entries 150,000 150,000 88,000 88,000 2,500 2,500 Year 2 (event details have been included within the general journal): Sun Corporation - General Journal (Year 2) Date Account Titles Feb. 15: Paid the cash dividend declared on Dec 31, Year 1. Feb. 15 Debit Credit 2,500 2,500 Mar. 3: Sold 15,000 shares of the $50 par preferred stock for $53 per share. Mar. 3 Cash (15,000 x $53) Preferred Stock, $50 par PIC in Excess of Par-PS 795,000 750,000 45,000 May 5: Purchased 900 shares of the comm. stock as treasury stock at $24 per share. May 5 Dec. 31: During the year, earned $210,000 cash rev. and paid $98,000 cash oper. expenses. Dec. 31 210,000 Cash Service Revenue Dec. 31 Operating Expenses Cash 210,000 98,000 98,000 Dec. 31: Declared the annual dividend on the preferred stock and a $0.50 per share dividend on the outstanding shares of common stock. Dec. 31 Dividends Dividends Payable *Space for Dividend calculations on next page, underneath the Year 2 closing entries PROBLEM 11-25A (cont.) b. Assets Cash Total Assets Liabilities Dividends Payable Total Liabilities Stockholders' Equity Sun Corporation Balance Sheet As of December 31, Year 1 $837,000 $837,000 $ $ Preferred Stock, $50 par value, 5% cumulative, 50,000 shares authorized, outstanding Common Stock, $10 par value, 100,000 shares authorized, 36,000 shares issued and 1,000 shares issued and $ outstanding Paid-In Capital in Excess of Par-Preferred Stock Paid-In Capital in Excess of Par-Common Stock Total Paid-In Capital 775,000 Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 834,500 $837,000 PROBLEM 11-25A (cont.) b. Assets Cash Total Assets Sun Corporation Balance Sheet As of December 31, Year 2 Liabilities Total Liabilities Dividends Payable Stockholders' Equity Preferred Stock, $50 par value, 5% cumulative, 50,000 shares authorized, and outstanding 16,000 shares issued Common Stock, $10 par value, 100,000 shares authorized, 36,000 shares issued and 35,100 outstanding Paid-In Capital in Excess of Par-Preferred Stock Paid-In Capital in Excess of Par-Common Stock Total Paid-In Capital Retained Earnings Less: Treasury Stock Total Stockholders' Equity Total Liabilities and Stockholders' Equity $1,719,900 $1,719,900 $ $ 1,570,000 ( ) 1,662,350 $1,719,900 PROBLEM 11-25A (cont.) C. Year 1 Jan. 5 Apr. 5 Totals Year 2 May 5 Totals Schedule of Number of Shares of Common Stock # Shares Issued # Shares Outstanding 36,000 35,100 # of Shares issued and # of shares outstanding are the same at the end of Year 1. However, for Year 2, the repurchase of 900 shares of treasury stock reduces the number of shares outstanding (but does not affec the # of shares issued). Therefore, at the end of Year 2, there are 36,000 shares issued but only 35,100 outstanding. Dec. 31 Service Revenue Retained Earnings Dec. 31 Retained Earnings Operating Expenses Dec. 31 Retained Earnings Dividends Year 2 Closing Entries *Year 2 Dividend Calculation: Preferred Stock, Annual Dividend: $50 x 5% x 16,000 shares o/s = $ Plus: Common Stock Dividend: $.50 x 35,100 shares o/s *Total Year 2 Dividend Ch11 Practice 210,000 210,000 98,000 98,000