10/13/2020 Selected transactions completed by Equinox Products Inc.

roducts Inc. during the fiscal year ended December 31, 20Y8, were as follows: a. Iss…

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Chapter 12, Problem 1COMP

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      Paid-in Capital in Excess of Par value –

80,000
      Preferred Stock ($400,000 − $320,000)
(To record issuance of 4,000 preferred shares in excess of par)

Table (2)

Cash is an asset account. The amount is increased, because cash is received upon stock issued. Therefore, debit Cash account with
the amount of cash received.
Preferred Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit
Preferred Stock account with the value of common stock.
Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount is increased due to increase in capital.
Therefore, credit Paid-in Capital in Excess of Stated Value account with the amount of cash received in excess of Preferred Stock
value.

c.

Record the issuance of par value preferred stock.

Date Account Titles and Explanation Debit ($) Credit ($)

  Cash ($500,000 × 1.04) 520,000
      Bonds payable 500,000
       Premium on bonds payable ($520,000 − $500,000) 20,000

(To record issuance of bond at premium)

Table (3)

Cash is a current asset, and increased. Therefore, debit cash account with $520,000.
Bonds payable is a long-term liability, and increased on issuance of bond. Therefore, credit bonds payable account with $500,000.
Premium on bonds payable is adjunct liability, and increased. Therefore, credit premium on bonds payable for $20,000.

d.

Record the declaration of cash dividend on common stock and preferred stock.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)

    Cash Dividends (100,000 shares × $0.50 per share)                              50,000

              Cash Dividends Payable   50,000

(To record declaration of dividends on common stock)

Table (4)

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)

    Cash Dividends (20,000 shares × $1 per share)                              20,000

              Cash Dividends Payable   20,000

(To record declaration of dividends on preferred stock)

Table (5)

Declaration date: The date on which the board of directors of a corporation announces of cially to distribute the dividends to its
shareholders is referred as declaration date.

Cash Dividends is a temporary stockholders’ equity account. The account is debited as the cash dividends are declared and eventually
be transferred to Retained Earnings account. Therefore, Cash Dividends account is debited
Cash Dividends Payable is a liability account and the amount owed to the stockholders is increased. Therefore, Cash Dividends
Payable account is credited.

e.

Record the payment of cash dividend declared in (d).

Record the journal entry for the payment of cash dividends.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)

C h Di id d P bl 70 000
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