. Stockholders Equity

Selected account balances of Varsity Company at December 31, 20x4, are reflected below:

5% Preferred stock, $100 par $ 50,000

Common stock, $10 par 100,000

Paid-in capital in excess of par-Preferred 10,000

Paid-in excess of par-Common 100,000

Unappropriated retained earnings 400,000

Retained earnings appropriated for contingencies 50,000

Varsity's charter authorizes the issuance of 1,000 shares of preferred stock and 100,000 shares of common stock.

a. Assume that before any additional transactions Varsity declared dividends totaling $90,000. How much should be allocated to preferred and common shareholders if:

1. Preferred stock is cumulative and nonparticpating. Two years dividends are in arrears.

2. Preferred stock is cumulative and participating in excess of 7.5 percent. Two years dividends are in arrears.

3. Preferred stock is cumulative and fully participating. One years dividends were in arrears.

4. Preferred stock is noncumulative and participating up to 10 percent

b. Give journal entries for the following transactions during 20x5:

1. On January 3, the city of College Park donated land to Varsity Company as an inducement for Varsity to build its new plant within the corporate limits of College Park. The land was appraised at $50,000 and had been acquired by the municipality of College Park in 20x1 for $24,000

2. On April 1, Varsity purchased 1,000 of its treasury shares for $12 each. Use the cost method.

3. On May 1, Varsity reissued the 1,000 treasury shares at $10.50

4. On June 1, the board declared a 5 percent stock dividend on the common stock. On this date, the price of the common stock was $12.

5. On July 1, the stock dividend declared on June 1 was distributed.

6. On October 15, Varsity accepted subscriptions to 5,000 of its previously unissued common

shares. The subscription price was $12, and a 25 percent down payment was received.

7. On December 1, the board of directors increased the appropriation for contingencies to $75,000.

8. On December 5, Varsity acquired machinery, appraised for $40,000, in exchange for 3,000 shares of Varsitys previously unissued common shares. The shares were trading at $12 on this date.

9. On December 15, 20x5, Varsity collected a 25 percent installment on 4,000 of the subscribed shares. One subscriber of 1,000 shares defaulted on the subscription agreement. The subscription agreement provided for a refund of 60 percent of previously paid installment amounts and forfeiture of the remainder.

10. Varsity announced its net income for 20x5 was $150,000. The dividends declared during the year were closed to retained earnings.

c. Prepare the stockholders equity section of Varsitys balance sheet at December 31, 20x5. Assume that cash dividends described in a (3) were declared and paid