Selected Transactions Completed By Primo Discount Corp ✓ Solved
Selected Transactions Completed By Primo Discount Corpor
Selected transactions completed by Primo Discount Corporation during the current fiscal year are as follows:
Jan. 9: Split the common stock 3 for 1 and reduced the par from $75 to $25 per share. After the split, there were 1,200,000 common shares outstanding.
Feb. 28: Purchased 40,000 shares of the corporation’s own common stock at $28, recording the stock at cost.
May 1: Declared semiannual dividends of $0.80 on 75,000 shares of preferred stock and $0.12 on the common stock to stockholders of record on June 1, payable on July 10.
Jul. 10: Paid the cash dividends.
Sep. 7: Sold 30,000 shares of treasury stock at $34, receiving cash.
Oct. 1: Declared semiannual dividends of $0.80 on the preferred stock and $0.12 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $36.
Dec. 1: Paid the cash dividends and issued the certificates for the common stock dividend.
Journalize the transactions. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles.
Fill in the data below or a separate Excel page JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT.
Paper For Above Instructions
In order to properly journalize the transactions completed by Primo Discount Corporation during the fiscal year, each transaction must be carefully analyzed and recorded with the correct accounts and amounts. The following are the detailed journal entries based on the transactions provided:
Journal Entries
1. January 9, Stock Split
On January 9, the company executed a 3-for-1 stock split, decreasing the par value of the common stock from $75 to $25. A stock split does not require a journal entry because it does not affect the total value of equity, only the number of shares and par value per share. However, a note can be made for record-keeping.
2. February 28, Purchase of Treasury Stock
For the transaction on February 28, the purchase of 40,000 shares of treasury stock at $28 will be journalized as follows:
Date | Description | Debit | Credit
Feb 28 | Treasury Stock | 1,120,000 |
| Cash | | 1,120,000
(40,000 shares x $28 per share = $1,120,000)
3. May 1, Declaration of Dividends
On May 1, semiannual dividends were declared on preferred and common stocks:
Date | Description | Debit | Credit
May 1 | Cash Dividends | 54,000 |
| Cash Dividends Payable | | 54,000
(Preferred: 75,000 shares x $0.80 = $60,000; Common: 1,200,000 shares x $0.12 = $144,000; Total = $204,000)
4. July 10, Payment of Cash Dividends
For the payment of cash dividends on July 10:
Date | Description | Debit | Credit
Jul 10 | Cash Dividends Payable | 204,000 |
| Cash | | 204,000
5. September 7, Sale of Treasury Stock
On September 7, the company sold 30,000 shares of treasury stock at $34:
Date | Description | Debit | Credit
Sep 7 | Cash | 1,020,000 |
| Treasury Stock | | 900,000
| Paid In Capital from Sale of Treasury Stock | | 120,000
(30,000 shares x $34 = $1,020,000; Cost of treasury stock sold: 30,000 shares x $28 = $840,000; Cash proceeds - Cost = Gain on Sale = $1,020,000 - $840,000 = $180,000)
6. October 1, Declaration of Dividends and Stock Dividend
On October 1, dividends were declared again:
Date | Description | Debit | Credit
Oct 1 | Cash Dividends | 54,000 |
| Cash Dividends Payable | | 54,000
For the 2% common stock dividend:
Date | Description | Debit | Credit
Oct 1 | Stock Dividends Distributable | 864,000 |
| Common Stock | | 720,000
| Paid-In Capital in Excess of Par-Common Stock | | 144,000
(2% of 1,200,000 shares = 24,000 shares, 24,000 shares x $36 = $864,000)
7. December 1, Payment of Cash Dividends and Issuance of Stock Dividend
Finally, on December 1, the cash dividends are paid and the stock dividend certificates are issued:
Date | Description | Debit | Credit
Dec 1 | Cash Dividends Payable | 54,000 |
| Cash | | 54,000
The issuance of the stock dividend would have already been recorded on October 1, so no further entry is necessary.
Conclusion
Through these transactions, Primo Discount Corporation effectively managed its equity and dividend obligations, providing returns to shareholders while executing strategic financial decisions such as treasury stock transactions and stock dividends.
References
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