accounts.
Common Stock ($20 par value, 60,000 shares issued and
outstanding) $1,200,000
Paid-in Capital in Excess of Par Value 200,000
Retained Earnings 500,000
During the year, the following transactions occurred.
Feb. 1 Declared a $1 cash dividend per share to stockholders of record on February 15,
payable March 1.
Mar. 1 Paid the dividend declared in February.
Apr. 1 Announced a 5-for-1 stock split. Prior to the split, the market price per share was $35.
July 1 Declared a 5% stock dividend to stockholders of record on July 15, distributable July
31. On July 1, the market price of the stock was $7 per share.
July 31 Issued the shares for the stock dividend.
Dec. 1 Declared a $0.50 per share dividend to stockholders of record on December 15,
payable January 5, 2009.
31 Determined that net income for the year was $380,000.
Instructions
(a) Journalize the transactions and closing entries.
(b) Enter the beginning balances and post the entries to the stockholders’ equity accounts.
(Note: Open additional stockholders’ equity accounts as needed.)
(c) Prepare a stockholders’ equity section at December 31.
P12-5A The ledger of Nakona Corporation at December 31, 2008, after the books have been
closed, contains the following stockholders’ equity accounts.
Preferred Stock (10,000 shares issued) $1,000,000
Common Stock (400,000 shares issued) 2,000,000
Paid-in Capital in Excess of Par Value—Preferred 200,000
Paid-in Capital in Excess of Stated Value—Common 1,100,000
Common Stock Dividends Distributable 200,000
Retained Earnings 2,365,000
A review of the accounting records reveals the following.
1. No errors have been made in recording 2008 transactions or in preparing the closing entry for
net income.
2. Preferred stock is 8%, $100 par value, noncumulative, and callable at $125. Since January 1,
2007, 10,000 shares have been outstanding; 20,000 shares are authorized.
3. Common stock is no-par with a stated value of $5 per share; 600,000 shares are authorized.
4. The January 1 balance in Retained Earnings was $2,450,000.
5. On October 1, 100,000 shares of common stock were sold for cash at $8 per share.
6. A cash dividend of $600,000 was declared and properly allocated to preferred and common
stock on November 1. No dividends were paid to preferred stockholders in 2007.
7. On December 31, a 10% common stock dividend was declared out of retained earnings on
common stock when the market price per share was $7.
8. Net income for the year was $795,000.
9. On December 31, 2008, the directors authorized disclosure of a $100,000 restriction of retained
earnings for plant expansion. (Use Note A.)
Instructions
(a) Reproduce the Retained Earnings account (T-account) for the year.
(b) Prepare a retained earnings statement for the year
(c) Prepare a stockholders’ equity section at December 31.
(d) Compute the earnings per share of common stock using 325,000 as the weighted average
shares outstanding for the year.
(e) Compute the allocation of the cash dividend to preferred and common stock.
