Diamondback Welding & Fabrication Corporation sells and services pipe welding equipment in Illinois. The following selected accounts appear in the ledger of Diamondback Welding & Fabrication Corporation at the beginning of the current fiscal year: Preferred 2% Stock, $80 par (100,000 shares authorized, 60,000 shares issued) $4,800,000
Paid-In Capital in Excess of Par—Preferred Stock 210,000
Common Stock, $9 par (3,000,000 shares authorized, 1,750,000 shares issued) 15,750,000
Paid-In Capital in Excess of Par—Common Stock 1,400,000
Retained Earnings 52,840,000

During the year, the corporation completed a number of transactions affecting the stockholders’ equity
The owners' equity in a corporation.

They are summarized as follows:

Feb. 2 Purchased 87,500 shares of treasury common for $8 per share.
Mar. 16 Sold 55,000 shares of treasury common for $11 per share.
May 7 Issued 20,000 shares of preferred 2% stock at $84.
Jun. 27 Issued 400,000 shares of common stock The stock outstanding when a corporation has issued only one class of stock at $13, receiving cash.
Aug. 30 Sold 18,000 shares of treasury common for $7.50 per share.
Dec. 5 Declared cash dividends.
A cash distribution of earnings by a corporation to its shareholders.
Of $1.60 per share on preferred stock
A class of stock with preferential rights over common stock.
and $0.05 per share on common stock.
31 Paid the cash dividends
Distributions of a corporation's earnings to stockholders.

Requried:
a. Journalize the entries to record the transactions.

Treasury Stock is termed as the shares that are repurchased by the company from investors. Movements above and below par value in the treasury stock account are accounted for in the Additional Paid-in Capital account using the par value method.

The entries have been attached below.

Calculation of Shares Outstanding and Dividends:

a) Preferred Stock:

Issued at beginning = 60,000

Issued May 7            = 20,000

Total in issue  =  80-000

c) Common Stock:

Issued at beginning          = 1,750,000

Feb. 2 Treasury repurchase=  (87,500)

Mar. 16 Treasury reissue       = 55,000

Jun. 6 Issue of new shares  =400,000

Aug. 30 Treasury reissue   =     18,000

Total outstanding        =       2,135,500

To know more about the journal entries and the computation, refer to the link below:

link

Diamondback Welding & Fabrication Corporation

Journal Entries:

Feb. 2

Debit Treasury Common Stock $700,000

Credit Cash Account $700,000

To record the repurchase of 87,500 shares of common stock for $8 per share.

May 16:

Debit Cash Account $605,000

Credit Treasury Common Stock $495,000

Credit Paid-In Capital in Excess of Par-Common Stock $110,000

To record the resale of 55,000 shares of treasury stock at $11 each.

May 7:

Debit Cash Account $1,680,000

Credit Preferred 2% Stock $1,600,000

Credit Paid-in In Excess of Par - Preferred Stock $80,000

To record the issue of 20,000 shares of preferred 2% stock at $84.

June 27:

Debit Cash Account $5,200,000

Credit Common Stock $3,600,000

Credit Paid-in In Excess of Par - Common Stock $1,600,000

To record the issue of 400,000 shares of common stock at $13.

Aug. 30:

Debit Cash Account $135,000

Debit Paid-in Excess of Par - Common stock $27,000

Credit Treasury Stock $162,000

To record the reissue of 18,000 shares of treasury common stock for $7.50.

Dec. 5:

Debit Cash Dividends- Preferred Stock $128,000

Debit Cash Dividends - Common Stock $106,775

Credit Dividends Payable $234,775

To record the declaration of dividends.

Dec. 31:

Debit Dividends Payable $234,775

Credit Cash Account $234,775

To record the payment of dividends.

Explanation:

Calculation of Shares Outstanding and Dividends:

a) Preferred Stock:

Issued at beginning = 60,000

Issued May 7            = 20,000

Total in issue      80-000

b) Preferred Dividend = $ 128,000 (80,000 x $1.60)

c) Common Stock:

Issued at beginning          = 1,750,000

Feb. 2 Treasury repurchase  (87,500)

Mar. 16 Treasury reissue        55,000

Jun. 6 Issue of new shares  400,000

Aug. 30 Treasury reissue        18,000

Total outstanding               2,135,500

d) Common Stock Dividend = $106,775 (2,135,500 x $0.05)

e) Treasury Stock are shares repurchased by the company from investors.  The account is a contra account to the Common Stock Account.  Movements above and below par value in the treasury stock account are accounted for in the Additional Paid-in Capital (Paid-in In Excess of Par - Common Stock) account using the par value method.  The second method is the cost method, where all the movements above and below par value are recorded in the Treasury Stock account.

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