The conversion rate is restated for all stock dividends and splits. Coffee had the following stock transactions in 2005 and 2006:

1/1/2005 - Sold 30,000 shares of common stock at $20 per share.

1/1/2005 - Sold 10,000 shares of preferred stock at $100 per share.

4/1/2005 - Issued at 50 percent stock dividend when the market price is $26 per share.

9/1/2005 - Purchased 4,000 treasury shares at $30 per share.

10/1/2005 - Sold 1,000 of the treasury shares at $32 per share.

11/1/2005 - Sold 2,000 of the treasury shares at $25 per share.

12/1/2005 - Issued a 2-1 for stock split.

12/20/2005 - Declared the required dividend to preferred stock holders and a $.25 per share dividend to common stockholders. Dividends are payable on 12/31/2005.

Prepare journal entries to record all of the above business events

Answer and Explanation:

The journal entries are shown below:

On Jan 1

Cash (30,000 Shares * $20) $600,000

To Common Stock (30,000 Shares * $2) $60,000

To Paid In Capital in Excess of Par - Common Stock $540,000

(Being the sale of the common stock is recorded)

On Jan 1

Cash (10,000 Shares * $100) $600,000

To Preferred Stock (10,000 Shares * $100) $1,000,000

(Being the sale of the preferred stock is recorded)

On Jan 4

Retained Earnings (30,000 * 50% * $26) $390,000

To Common Stock (15,000 shares * $2) $30,000

To Paid In Capital in Excess of Par - Common Stock $360,000

(Being the issued of the stock dividend is recorded)

On Jan 9

Treasury Stock (4,000 Shares * $30) $120,000

To Cash $120,000

(Being the purchase of treasury stock is recorded)

On Jan 10

Cash (1,000 Shares * $32) $32,000

To Treasury Stock (1,000 Shares * $30) $30,000

To Paid in Capital from Treasury Stock $2,000

(Being the sale of the treasury stock is recorded)

On Jan 11

Cash (2,000 Shares * $25) $50,000

Paid in Capital - Treasury Stock $2,000

Retained Earnings $8,000

To Treasury Stock (2,000 Shares * $30) $60,000

(Being the sale of the treasury stock is recorded)

On Jan 12

Since the shares are issued for 2 to 1 i. e the number of shares is rises from 29,000 shares to 58,000 shares due to which the par value is decreased from $2 to $1 per share. So the new 29,000 shares were to be distributed

On Dec 20

Retained Earnings $74,500

To Dividend Payable - Preferred Stock (10,000 Shares * 100 * 6%) $60,000

To Dividend Payable - Common Stock (58,000 Shares * $0.25) $14,500

(Being the dividend is declared)