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6 9 10 D-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes D-Mobile to issue 50,000 shares of 8%, $50 par value cumulative preferred stock and 160,000 shares of $4 par value common stock. During the first month, D-Mobile completed the following transactions: Oct. 2 Issued 19,000 shares of common stock for a building with a market value of $240,000. Issued 600 shares of preferred stock for $140 per share. Issued 11,000 shares of common stock for cash for $5 per share Declared a $19,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock. Paid the cash dividend. Purchased 600 shares of the company's common stock, paying cash of S6 per share. Requirements 1. Record the transactions by preparing journal entries in the general journal. 2. Prepare the stockholders' equity section of D-Mobile's balance sheet at October 31, 2018. Assume D-Mobile's net income for the month was $94,000. 25 NOTE : Use the Exhibit 13-7 on page 700 of your text book as your model for the Stockholders' section of the balance sheet. 700 S chapter 13 The 200 treasury shares are sold for $100 less than their cost [($4.50 sales price per share - $5 cost per share) X 200 shares). However, only $60 remains in Paid-In Capital from Treasury Stock Transactions. The difference of $40 ($100 - $60) is debited to Retained Earnings because the paid-in capital accounts cannot have debit balances. Now we can show the revised stockholders' cquity for Smart Touch Learning as shown in Exhibit 13-7. Exhibit 13-7 Stockholders' Equity After Treasury Stock Transactions SMART TOUCH LEARNING, INC. Balance Sheet (Partial) April 4, 2019 Stockholders' Equity Paid-In Capital: Preferred Stock-550 Par Value; 2,000 shares authorized, 1,000 shares issued and outstanding 550.000 Paid In Capital in Excess of Par-Preferred 5,000 Common Stock-$1 Par Value; 20,000,000 shares authorized, 23,000 shares issued, 22.700 shares outstanding 23,000 Paid-In Capital in Excess of Par-Common 25,000 Total Paid-in Capital 103,000 Retained Earnings 3,510 Treasury Stock-Common: 300 shares at cost (1.500) Total Stockholders' Equity $ 105,010 So, how many common shares are outstanding on April 42 The 23,000 common shares previously issued minus 300 treasury shares cquals 22,700 outstanding common shares. Authorized 20,000,000 shares Issued 23,000 shares Unissued 19,977,000 shares Outstanding 22,700 shares Treasury 300 shares 701 rested Corporations Retirement of Stock Not all companies repurchase their previously issued stock to hold it in the treasury. A corporation may retire its stock by canceling the stock certificates. Retired stock cannot be Retirements of preferred stock are common as companies seek to avoid paying the preferred dividends. To repurchase previously issued stock for retirement, we debit the srock accounts--for example, Preferred Stock and Puid-In Capital in Excess of Par- Preferred and credit Cash. That removes the retired stock from the company's books, shich reduces total assets and total stockholders' equity. Try It! 7. On January 3, Halsall Corporation purchased 2,000 shares of the company $2 par value common stock as treasury stock, paying cash of $8 per share. On January 30, Halsall sold 1,200 shares of the treasury stock for cash of $10 per share. Journal ize these transactions Check your answers online in My Accounting Lab or at http//www.pearsonhighered.com/Horngren. For more practice, see Short Exercise 513-6. MyAccountingLab Learning Objective 4 Account for cash dividends, stock dividends, and stock splits HOW ARE DIVIDENDS AND STOCK SPLITS ACCOUNTED FOR? A profitable corporation may make distributions to stockholders in the form of dividends. Dividends can be paid in the form of cash, stock, or other property. Cash Dividends Cash dividends cause a decrease in both assets (Cash) and equity (Retained Earnings). Most States prohibit using paid-in capital for dividends. Accountants, therefore, use the term legal capital to refer to the portion of stockholders' equity that cannot be used for A corporation declares a dividend before paying it. Three dividend dates are relevant: 1. Declaration date. On the declaration date--say, May 1-the board of directors announces the intention to pay the dividend. The declaration of a cash dividend creates an obligation (liability) for the corporation. 2. Date of record (or record date). Those stockholders holding the stock at the end of busi- ness on the date of recorda week or two after declaration, say, May 15will receive the dividend check. Date of record is the date the corporation records the stockholders that receive dividend checks. 1. Payment date. Payment of the dividend usually follows the record dute by a week or two--say, May 30. Legal Capital The portion of stockholders' equity that cannot be used for dividends dividends. chapter 13 Declaring and Paying Dividends-Common Stock 22,700 outstanding shares of common stock (23,000 shares issued less 300 shares of Suppose on May 1, Smart Touch Learning declares a $0.05 per share cash dividend on treasury stock). On the date of declaration, Smart Touch Learning records a dcbito Cash Dividends and a credit to Dividends Payable-Common (a current liability) The cash dividend rate on preferred stock is often expressed as a percentage of the preferred expressed as a flat dollar amount per share, such as $3 per share. Therefore, preferred dends are computed two ways, depending on how the preferred stock cash dividend rais 702 follows: Debit Credit LE E! Date Accounts and Explanation 1,135 Dividends Cash May 1 Cash Dividends ($0.05 per share x 22,700 shares) Payablet Dividendst 1,135 Dividends Payable-Common Declared a cash dividend. Dividends are only paid on outstanding shares. Remember that outstanding stock is issued stock less treasury stock. A corporation will never pay dividends on treasury stock On May 15, the date of record, no journal entry is recorded. This is simply the cutoff point to determine who owns the stock and will, therefore, receive the cash payment. To pay the dividend on the payment date, May 30, Smart Touch Learning debits Divi dends Payable-Common and credits Cash: A! Date Accounts and Explanation Debit Credit Cash! Dividends May 30 Dividends Payable-Common 1,135 Payable! Cash 1,135 Payment of cash dividend, At the end of the accounting period, Smart Touch Learning will close the Cash Di dends account to Retained Earnings as follows: Date Accounts and Explanation Debit Retained Credit Dec.31 Retained Earnings Earnings! 1,135 Cash Cash Dividends Dividends. 1,135 To close Cash Dividends. Declaring and Paying Dividends-Preferred Stock A stock par value, such as 6%. Sometimes, however, cash dividends on preferred stock are sted on the preferred stock certificate. To illustrate, assume a fictitious company Grey