On January 5, 2010, Phelps Corporation received a charter granting the right to issue
5,000 shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and
50,000 shares of $10 par value common stock. It then completed these transactions. Jan
11 Issued 20,00 shares of common stock at $16 per share Feb 1 Issued to sanchez corp.
4,000 shares of preferred stock fo rth following assests: machinery with a fair market
value of $50,000; a factory building with a fair market value of $160,000; and land with
an appraised value of $270,000. July 29 Purchased 1,800 shares of common stock at $17
per share (use cost method). August 10 sold the 1,800 treasury shares at $14 per share.
Dec 31 Declared a $0.25 per share cash divident on the common stock and declared the
preferred dividend. Dec 31 Closed the income Summary account. There was a $175,700
net income. Instructions: a) Record the journal entries for the transactions listed above b)
prepare the stockholders equity section of Phelps Corporation's balance sheet as of Dec
31, 2010.
(a)
January 11
Cash (20,000 X $16)........................................................................... 320,000
Common Stock (20,000 X $10) ...............................................
200,000
Paid-in Capital in Excess of Par—Common.........................
120,000
February 1
Machinery........................................................................................... 50,000
Factory Building................................................................................. 160,000
Land .......................................................................................270,000
Preferred Stock (4,000 X $100)...............................................
400,000
Paid-in Capital in Excess of Par—Preferred.........................
80,000
July 29
Treasury Stock (1,800 X $17)............................................................ 30,600
Cash...........................................................................................
30,600
August 10
Cash (1,800 X $14)............................................................................. 25,200
Retained Earnings (1,800 X $3)........................................................ 5,400*
Treasury Stock.........................................................................
30,600
*(The debit is made to Retained Earnings because no Paid-in Capital *from
Treasury Stock exists.)
December 31
Retained Earnings.............................................................................. 37,000
Cash Dividend Payable—Common........................................
5,000*
Cash Dividend Payable—Preferred.......................................
32,000**
*Common Stock Cash Dividend:
Common shares outstanding 20,000
Common cash dividend X $.25
$5,000
**(4,000 X 100 X 8%)
December 31
Income Summary............................................................................... 175,700
Retained Earnings.................................................................... 175,700
(b) PHELPS CORPORATION
Stockholders’ Equity
December 31, 2010
Capital stock
Preferred stock—par value $100 per share,
8% cumulative and nonparticipating,
5,000 shares authorized,
4,000 shares issued and outstanding.................................. $400,000
Common stock—par value $10 per share,
50,000 shares authorized,
20,000 shares issued and outstanding................................ 200,000
Total capital stock........................................................ 600,000
Additional paid-in capital
Paid-in capital in excess of par—preferred.......................... $ 80,000
Paid-in capital in excess of par—common............................ 120,000
200,000
Total paid-in capital....................................................
800,000
Retained earnings 133,300*
Total stockholders’ equity...........................................
$933,300
*($175,700 – $5,400 – $37,000)
