1 answer

Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. Now they...

Question:

Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow another million dollars, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has two classes of stock authorized: 8%, $10 par preferred, and $1 par value common. When the company began on July 1, 2018, Tony and Suzie each purchased 10,000 shares of $1 par value common stock at $1 per share. The following transactions affect stockholders’ equity during 2020, its third year of operations: July 2 Issue an additional 110,000 shares of common stock for $10 per share. September 10 Repurchase 11,000 shares of its own common stock (i.e., treasury stock) for $13 per share. November 15 Reissue 5,500 shares of treasury stock at $14 per share. December 1 Declare a cash dividend on its common stock of $124,500 ($1 per share) to all stockholders of record on December 15. December 31 Pay the cash dividend declared on December 1.

1. Record each of these transactions.

2. Great Adventures has net income of $148,000 in 2020. Retained earnings at the beginning of 2020 was $138,000. Prepare the stockholders’ equity section of the balance sheet for Great Adventures as of December 31, 2020.


Answers

1.

Date Account Titles and Explanation Debit Credit
Jul. 2, 2020 Cash (110000 x $10) 1100000
Common stock (110000 x $1) 110000
Paid-in capital in excess of par-common 990000
(To record issuance of common stock)
Sep. 10, 2020 Treasury stock (11000 x $13) 143000
Cash 143000
(To record purchase of treasury stock)
Nov. 15, 2020 Cash (5500 x $14) 77000
Treasury stock (5500 x $13) 71500
Paid -in capital from treasury stock 5500
(To record re-issue of treasury stock)
Dec. 1, 2020 Dividends 124500
Dividends payable 124500
(To record declaration of dividends on common stock)
Dec.

31, 2020

Dividends payable 124500
Cash 124500
(To record payment of dividend)

2.

Great Adventures
Balance Sheet (Partial)
As of December 31, 2020
Stockholders' Equity:
Common stock ($20000 + 110000) 130000
Paid-in capital in excess of par-common 990000
Paid-in capital from treasury stock 5500
Total paid-in capital 1125500
Retained earnings ($138000 + 148000 - 124500) 161500
Less: Treasury stock -71500
Total stockholders' equity 1215500
.

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