Answer:
The solution are given as under:
Explanation:
Part 1. The entry would record common stock at part and the above par value would be paid in capital.
Dr Cash $675,000
Cr Common Stock $60,000
Cr Paid In Capital $615,000
Part 2. When dividend is declared, dividend payable must be recognized against the Retained Earnings.
Dividends Payable can be calculated by finding out the total shares on 15th of June, which is:
Total shares = Shares issued + Previously Held shares
= 75,000 + 60,000 = 135,000
Now the total dividend that is payable is:
Dividend Declared = Total Number of Shares * Dividend per share
= 135,000 Shares * $2 per share = $270,000
Dr Retained Earnings $270,000
Cr Dividend Payables $270,000
Part 3. The payment of dividends will decrease the dividend payables with $270,000, so the double entry would be:
Dr Dividend Payables $270,000
Cr Cash Account $270,000
Part 4. The purchasing of the treasury stock would be recorded as under:
Dr Treasury Stock $90,000 ..... $15 per share * 5000 shares
Cr Cash Account $90,000
Part 5. The cash dividend declared would be similarly the way we calculated in the part 3 but here we will also account for the treasury stock as under:
Total shares = Shares issued + Previously Held shares - Treasury Stock
= 75,000 + 60,000 - 5,000 = 130,000
Now the total dividend that is payable is:
Dividend Declared = Total Number of Shares * Dividend per share
= 130,000 Shares * $2.5 per share = $325,000
Dr Retained Earnings $325,000
Cr Dividend Payables $325,000
