At the beginning of 2020, Brown Corporation had the followingstockholders’ equity balances in its general ledger:
Common Stock, $10 Par Value | $2,500,000 |
Paid-In Capital in Excess of Par: Common | 1,500,000 |
Paid-In Capital, Treasury Stock | 10,000 |
Paid-In Capital, Stock Options | 40,000 |
Retained Earnings | 3,000,000 |
Treasury Stock (10,000 shares) | (180,000) |
TotalStockholders’ Equity | $6,870,000 |
The paid-in capital from stock options relates to optionsgranted on 1/1/18 to the CEO as incentive compensation. As of1/1/20, the remaining expected benefit period is four years;expense has been and will be recorded evenly over the benefitperiod.
The following events were among the many occurring in 2020:
- January 2: Purchased 5,000 shares of its common stock for $15per share. Brown uses the cost method of accounting for treasurystock transactions.
- February 1: Declared and paid a cash dividend of $2 per shareon the outstanding common stock.
- April 1: Issued 20,000 shares of $50 par, noncumulative,convertible 6% preferred stock for $60 per share, where one shareof preferred stock is convertible into three shares of commonstock.
- July 1: 2,000 shares of treasury stock that had been purchasedin a prior year for $18 per share were re-issued for $10 pershare.
- August 1: Holders of 6,000 shares of the preferred stockconverted their shares into common stock when the market value ofthe common stock was $22 per share. Brown uses the book valuemethod of accounting for conversions.
- October 1: Declared and distributed a 1% stock dividend oncommon stock outstanding when the market price of the stock was $24per share.
- November 1: Corrected an error that was made several years ago,when land that had been purchased for $60,000 was inadvertentlyexpensed.
- December 1: Declared and distributed a property dividend ofland to preferred shareholders. The land had a fair value of$60,000 and a carrying value of $75,000.
- December 31: Recorded 2020 compensation expense related to thestock options.
The 2020 Final Net Income, including the effects of any netincome items listed above (and the 2020 tax effects on net incomeitems), was $700,000. There were 500,000 shares authorized for bothpreferred and common stock.
(OVER)
Required:
- All journal entries for the items (a. through i.) above. Noexplanations. Ignore tax effects.
- The 12/31/20 Stockholders’ Equity section. Use the format fromthe Frost Company example in Chapter 15 of the text. Includeparenthetical disclosures for preferred stock and commonstock.
