Reference no: EM132743952
Question: A. On January 5, 2019, PE Corporation received a charter granting the right to issue 5,000 shares of P100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of P10 par value common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at P16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the following assets: equipment with a fair value of P50, 000; a factory building with a fair value of P160, 000; and land with an appraised value of P270, 000.
July 29 Purchased 1,800 shares of common stock at P17 per share. (Use cost method.)
Aug. 10 Sold the 1,800 treasury shares at P14 per share.
Dec. 31 Declared a P0.25 per share cash dividend on the common stock and declared the preferred dividend. Dec. 31 Closed the Income Summary account. There was a P175, 700 net income.
Instructions: (a) Record the journal entries for the transactions listed above.
(b) Make the stockholders' equity section of PE Corporation's balance sheet as of December 31, 2019.
B. EC Corporation has outstanding 3,000,000 shares of common stock of a par value of P10 each. The balance in its Retained Earnings account at January 1, 2019, was P24,000,000, and it then had Paid-in Capital in Excess of Par-Common Stock of P5,000,000. During 2019, the company's net income was P4, 700,000. A cash dividend of P0.60 a share was declared on May 5, 2019, and was paid June 30, 2019, and a 6% stock dividend was declared on November 30, 2019, and distributed to stockholders of record at the close of business on December 31, 2019. You have been asked to advise on the proper accounting treatment of the stock dividend. The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows.
October 31, 2019 P31
November 30, 2012 P34
December 31, 2012 P38
(a) Prepare the journal entry to record the declaration and payment of the cash dividend.
(b) Prepare the journal entry to record the declaration and distribution of the stock dividend.
(c) Prepare the stockholders' equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of EC Corporation for the year 2019 on the basis of the foregoing information.
(d) Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate comments or explanations regarding the basis chosen
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