E15-18 (Dividends and Stockholders’ Equity Section) Anne Cleves Company reported

the following amounts in the stockholders’ equity section of its December 31, 2006,
balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares
issued) $200,000 Common stock, $5 par (100,000 shares authorized, 20,000 shares
issued) 100,000 Additional paid-in capital 125,000 Retained earnings 450,000 Total
$875,000 (L0 4, 7, 8) (L0 6, 7, 8) During 2007, Cleves took part in the following
transactions concerning stockholders’ equity. 1. Paid the annual 2006 $10 per share
dividend on preferred stock and a $2 per share dividend on common stock. These
dividends had been declared on December 31, 2006. 2. Purchased 1,700 shares of its own
outstanding common stock for $40 per share. Cleves uses the cost method. 3. Reissued
700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at
$105 per share. 5. Declared a 10% stock dividend on the outstanding common stock
when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the
annual 2007 $10 per share dividend on preferred stock and the $2 per share dividend on
common stock. These dividends are payable in 2008. Instructions (a) Prepare journal
entries to record the transactions described above. (b) Prepare the December 31, 2007,
stockholders’ equity section. Assume 2007 net income was $330,000.

(a) 1. Dividends Payable—Preferred (2,000 X $10).............................. 20,000

Dividends Payable—Common (20,000 X $2)............................... 40,000
Cash................................................................................... 60,000

2. Treasury Stock............................................................................
68,000
Cash (1,700 X $40)............................................................ 68,000

3. Land.............................................................................................
30,000
Treasury Stock (700 X $40).............................................. 28,000
Paid-in Capital From Treasury Stock............................. 2,000
4. Cash (500 X $105).......................................................................
52,500
Preferred Stock (500 X $100).......................................... 50,000
Paid-in Capital in Excess of Par—
Preferred......................................................................... 2,500

5. Retained Earnings (1,900* X $45)............................................. 85,500

Common Stock Dividend Distributable
(1,900 X $5)..................................................................... 9,500
Paid-in Capital in Excess of Par—
Common......................................................................... 76,000
 *(20,000 – 1,700 + 700 = 19,000; 19,000 X 10%)

6. Common Stock Dividend Distributable.................................... 9,500

Common Stock.................................................................. 9,500

7. Retained Earnings......................................................................
66,800
Dividends Payable—Preferred
(2,500 X $10)................................................................... 25,000
Dividends Payable—Common
(20,900* X $2)................................................................. 41,800
*(19,000 + 1,900)

(b) Anne Cleves Company

Stockholders’ Equity
December 31, 2007
Capital stock
Preferred stock, 10%, $100 par, 10,000 shares
authorized, 2,500 shares issued and
outstanding $250,000
Common stock, $5 par, 100,000 shares
authorized, 21,900 shares issued, 20,900
shares outstanding 109,500
Total capital stock 359,500
Additional paid-in capital 205,500
Total paid-in capital 565,000
Retained earnings 627,700
Total paid-in capital and retained earnings 1,192,700
Less: Cost of treasury stock (1,000 shares common) 40,000
Total stockholders’ equity $1,152,700

Computations:
Preferred stock $200,000 + $50,000 = $250,000
Common stock $100,000 + $ 9,500 = $109,500
Additional paid-in capital: $125,000 + $2,000 + $2,500 + $76,000 =
$205,500
Retained earnings: $450,000 – $85,500 – $66,800 + $330,000 =
$627,700

Treasury stock $68,000 – $28,000 = $40,000