HANDOUT 11–1 SOLUTION
STOCK TRANSACTIONS
Prepare the journal entries required to record the following transactions and then post them to the related
T-accounts:
Strait Corp. sold 10,000 shares of $1 par value stock for $25 per share on May 1.
May 1
Cash (10,000 × $25)
250,000
Common Stock (10,000 × $1)
10,000
Additional Paid-in Capital ($250,000 – $10,000)
240,000
+ Cash (A) –
May 1
– Common Stock (SE) +
10,000
May 1
– Additional Paid-in Capital (SE) +
240,000
May 1
On December 1, Strait Corp. repurchased 1,000 shares of its stock on the market when it was trading for
$16 per share.
Dec. 1
Treasury Stock (1,000 × $16)
16,000
Cash (–A)
16,000
+ Cash (A) –
May 1
+ Treasury Stock (xSE) –
Dec. 1
16,000
On December 15, Strait Corp. sold 500 of the treasury shares for $30 each.
Dec. 15
Cash (500 × $30)
15,000
Treasury Stock (500 × $16)
8,000
Additional Paid-in Capital (500 × [$30 – $16])
7,000
+ Cash (A) –
May 1
Dec. 15
+ Treasury Stock (xSE) –
Dec. 1
16,000
8,000
Dec. 15
– Additional Paid-in Capital (SE) +
240,000
May 1
7,000
Dec. 15
HANDOUT 11–1 SOLUTION, CONTINUED
On December 30, Strait Corp. sold 500 of the treasury shares for $15 each.
Dec. 30
Cash (500 × $15)
7,500
Additional Paid-in Capital (500 × [$16 – $15])
500
Treasury Stock (500 × $16)
8,000
+ Cash (A) –
May 1
Dec. 15
+ Treasury Stock (xSE) –
Dec. 1
16,000
8,000
Dec. 15
8,000
Dec. 30
Balance
0
– Additional Paid-in Capital (SE) +
240,000
May 1
7,000
Dec. 15
Dec. 30
500
HANDOUT 11–2
CASH DIVIDENDS
Jones Corp. has 200,000 shares of stock authorized, 120,000 shares issued, and 100,000 shares
outstanding. On August 1, Jones’ Board of Directors declared a cash dividend of $0.50 per share, with a
record date of September 1. The dividend will be paid on October 1.
Prepare the journal entries required to record the transactions described above, as needed, and then post
them to the related T-accounts:
Aug. 1
Sept. 1
Oct. 1
HANDOUT 11–2 SOLUTION
CASH DIVIDENDS
Jones Corp. has 200,000 shares of stock authorized, 120,000 shares issued, and 100,000 shares
outstanding. On August 1, Jones’ Board of Directors declared a cash dividend of $0.50 per share, with a
record date of September 1. The dividend will be paid on October 1.
Prepare the journal entries required to record the transactions described above, as needed, and then post
them to the related T-accounts:
Aug. 1
Dividends (100,000 × $0.50)
50,000
Dividends Payable
50,000
+ Dividends (D) –
Aug 1
– Dividends Payable (L) +
50,000
May 1
Sept. 1
No Entry
Oct. 1
Dividends Payable
50,000
Cash
50,000
+ Cash (A) –
Oct. 1
– Dividends Payable (L) +
50,000
May 1
Oct. 1
50,000
HANDOUT 11–3
PREFERRED DIVIDENDS
On January 1, Garden State issued 10,000 shares of $10 par preferred stock for $19 per share. Prepare the
journal entry required to record this transaction and post it to the appropriate T-accounts:
Jan. 1
The stock pays a cumulative annual dividend of 7% of par value. What is the total amount of the annual
dividends that would be paid, if declared, to preferred stockholders?
Complete the following table to explain how dividends would be allocated between preferred and
common stockholders:
Year
Total Dividend
To Preferred Stockholders
To Common Stockholders
Current
$100,000
Year 2
5,000
Year 3
10,000
Year 4
None
Year 5
20,000
HANDOUT 11–3 SOLUTION
PREFERRED DIVIDENDS
On January 1, Garden State issued 10,000 shares of $10 par preferred stock for $19 per share. Prepare the
journal entry required to record this transaction and post it to the appropriate T-accounts:
Jan. 1
Cash (10,000 × $20)
190,000
Preferred Stock (10,000 × $10 )
100,000
Additional Paid-in Capital
90,000
+ Cash (A) –
Jan. 1
– Preferred Stock (SE) +
Jan. 1
– Additional Paid-In Capital (SE) +
Jan. 1
The stock pays a cumulative annual dividend of 7% of par value. What is the total amount of the annual
dividends that would be paid, if declared, to preferred stockholders?
Par value of $100,000 × 7% = $7,000 to preferred
Complete the following table to explain how dividends would be allocated between preferred and
common stockholders.
Year
Total Dividend
To Preferred Stockholders
To Common Stockholders
Current
$100,000
$ 7,000
$93,000
Year 2
5,000
5,000
0
Year 3
10,000
9,000
(2,000 in arrears + 7,000)
1,000
Year 4
None
0
0
Year 5
20,000
14,000
6,000
HANDOUT 11–4
STOCK DIVIDENDS AND STOCK SPLITS
Jennings Corp. has 1,000,000 shares of $1 par value stock authorized, 200,000 shares issued, and 150,000
shares outstanding. On March 31, Jones’ Board of Directors declared a 10% stock dividend at a time that
the stock carried a market value of $30. Prepare the journal entry required to record this transaction and
then post it to the related T-accounts:
March 31
Compute the number of shares outstanding after the March 31 stock dividend.
Jennings Corp. announced a 100% stock dividend on June 30. Prepare the journal entry required to record
this transaction and then post it to the related T-accounts:
June 30
Compute the number of shares outstanding after the June 30 stock dividend.
HANDOUT 11–4, continued
Jennings Corp. announced a 2 for 1 stock split on September 30. Prepare the journal entry required to
record the transaction described above and then post it to the related T-accounts:
September
30
Compute the number of shares outstanding after the September 30 stock split.
HANDOUT 11–4 SOLUTION
STOCK DIVIDENDS AND STOCK SPLITS
Jennings Corp. has 1,000,000 shares of $1 par value stock authorized, 200,000 shares issued, and 150,000
shares outstanding. On March 31, Jones’ Board of Directors declared a 10% stock dividend at a time that
the stock carried a market value of $30.
Prepare the journal entry required to record the transaction described above and then post it to the related
T-accounts:
March 31
Retained Earnings ($30 × 150,000 × 10%)
4,500,000
Common Stock ($1 × 150,000 × 10%)
15,000
Additional Paid-in Capital
4,485,000
– Retained Earnings (SE) +
March 31
– Common Stock (SE) +
March 31
– Additional Paid-In Capital (SE) +
March 31
Compute the number of shares outstanding after the March 31 stock dividend.
150,000 + (150,000 × 10%) = 165,000 shares
Jennings Corp. announced a 100% stock dividend on June 30. .
Prepare the journal entry required to record the transaction described above and then post it to the related
T-accounts:
June 30
Retained Earnings ($1 × 165,000)
165,000
Common Stock
165,000
– Retained Earnings (SE) +
March 31
4,500,000
June 30
165,000
– Common Stock (SE) +
15,000
March 31
165,000
June 30
– Additional Paid-In Capital (SE) +
4,485,000
March 31
Compute the number of shares outstanding after the June 30 stock dividend.
165,000 old shares + 165,000 new shares = 330,000 shares
HANDOUT 11–4 SOLUTION, continued
Jennings Corp. announced a 2 for 1 stock split on September 30.
September
30
Memorandum entry only: A 2-for-1 stock split caused
the number of shares outstanding to increase from
330,000 shares to 660,000 shares and the par value to
decrease from $1.00 per share to $0.50 per share.
330,000 old shares + 330,000 new shares = 660,000 shares