Hatch Company has two classes of capital stock: 8%, $20 par preferred and $5 par common. At December 31, 2017, the following accounts were included in stockholders' equity.

Preferred Stock, 1,000,000 shares authorized, 150,000 shares outstanding $3,000,000
Common Stock, 5,000,000 shares authorized, 2,000,000 shares outstanding $10,000,000
Paid-in Capital in Excess of Par - Preferred Stock $200,000
Paid-in Capital in Excess of Par - Common Stock $27,000,000
Retained Earnings $4,500,000

The following transactions affected stockholders' equity during 2018.

Jan. 1 - 30,000 shares of preferred stock issued at $22 per share.

Feb. 1 - 100,000 shares of common stock issued at $20 per share.

June 1 - Declared a 5% stock dividend on the outstanding common stock when the stock is selling for $25 per share.

June 20 - Issued the stock dividend declared on June 1.

July 1 - 30,000 shares of common treasury stock purchased at $10 per share.

Sept. 15 - 10,000 shares of treasury stock reissued at $11 per share.

Dec. 31 - The preferred dividend is declared, and a common dividend at $0.50 per share is declared.

Dec. 31 - Net income is $2,100,000.

Required:

1. Prepare Journal Entries to Record the Transactions.

2. Prepare the stockholders' equity section for Hatch Company at December 31, 2018. Show all supporting computations.

Explanation:

DateAccounts and explanationsDebit ($)Credit ($)

Jan. 1, 2018Cash (39,900*$23 per share)917,700  

7% Preferred stock (39,900 shares * $20 per share)  798,000

Paid-in capital in excess of par - Preferred stock (39,900 shares * $3 per share) ($23 - $20)  119,700

(To record the issue of preferred shares with premium for cash)  

Feb. 1, 2018Cash (53,400*$21 per share)1,121,400  

Common stock (53,400 shares * $5 per share)  267,000

Paid-in capital in excess of par - Common stock (53,400 shares * $16 per share) ($21 - $5)  854,400

(To record the issue of preferred shares with premium for cash)  

June. 1, 2018Common stock (2,127,000 shares + 53,400 shares = 2,180,400)*$5 per share10,902,000  

Common stock (2,180,400 shares * 2 * $2.5 per share)  10,902,000

(To record stock split of 2 shares issued for every one share held)  

July. 1, 2018Treasury stock (32,000 shares * $10 per share)320,000  

Cash  320,000

(To record the purchase of treasury stock by cash)  

Sept. 15, 2018Cash122,400  

Treasury stock (10,200 shares * $10 per share)  102,000

Paid-in capital in excess of par - Treasury stock (10,200 shares * $2 per share) ($12 - $10)  20,400

Dec. 31, 2018Income summary (Net income)2,182,000  

Retained earnings  2,182,000

(To record the net income at the end of the year)  

Dec. 31, 2018Retained earnings1,348,380  

Preferred dividends ($3,046,000 + $798,000)*7/100)  269,080

Common dividend (see note) (2,158,600*$0.5 per share)  1079300

(To record the declaration of dividends)  

Working note:

ParticularsIn shares

Total shares issued2,180,400

Less: Treasury shares32,000

Add: Reissue of treasury shares10,200

Total share to be accounted2,158,600

Note: For stock split, no journal entry is required as there will be no change in the total value but only the number of shares will increase and per share will decrease keeping the total value same. Only memorandum entries are prepared.

The common stock dividend per share is confusing with another symbol whether it is $5 per share or $0.5 per share, so it is assumed as $0.5 per share is declared as dividend for common stock.

Note: Since no question is asked in this post, it is assumed that journal entries are required to record transactions that occurred during 2018.

d. all of the above are true.

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