Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 20Y8, were as follows:

Jan. 3 Issued 15,000 shares of $20 par common stock at $30, receiving cash.
Feb. 15 Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.
May 1 Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.
16 Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000
shares of preferred stock were outstanding.
26 Paid the cash dividends declared on May 16.

Jun.
8 Purchased 8,000 shares of treasury common stock at $33 per share.
30 Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued.
Jul.
11 Paid the cash dividends to the preferred stockholders.

Oct.
7 Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8.
31 Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method.

Required:
Journalize the selected transactions.

To record the declaration of a quarterly dividend of $0.50 per share on 100,000 common stock shares and $1.00 per share on 20,000 preferred stock shares.

May 26:

Debit Dividends Payable $70,000

Credit Cash Account $70,000

To record the payment of cash dividends.

Jun. 8:

Debit Treasury Stock $160,000

Debit Additional Paid-in Capital: Common Stock $104,000

To record the repurchase of shares at $33 per share.

June 30:

Debit Dividends: Preferred Stock $20,000

Credit Dividends Payable $20,000

To record the declaration of a quarterly dividend of $1.00 per share on 20,000 preferred stock shares.

Jul. 11:

Debit Dividends Payable $20,000

Credit Cash Account $20,000

To record the payment of cash dividends.

Oct. 7:

Debit Cash Account $98,800

Credit Treasury Common Stock $52,000

Credit Additional Paid-in Capital: Common Stock $46,800

To record the reissue of 2,600 shares of treasury common stock at $38.

Oct. 31:

Debit Bonds Interest $12,500

Credit Cash Account $12,500

To record the payment of semiannual interest on the bonds.

Debit Bond Premium $1,000

Credit Bond Premium Amortization $1,000

To record the amortization of the premium for six months using the straight-line method.

Explanation:

a) Common Stock issued at $30 with $20 par value means that the shares were issued at above par value. The difference is accounted for in a separate account called Additional Paid-in Capital. The same applies to the preferred stock issued at above par value.

b) The face value of the Bonds is $500,000 but issued at a premium. The total premium is $20,000 ($500,000 x 0.04).

c) Dividends on the Common Stock = $0.50 * 100,000 shares = $50,000. The preferred stock dividends = $1.00 * 20,000 = $20,000.

d) Treasury Stock represents the value of common stock repurchased or reissued from stockholders by the company. There are two methods to treat the above or below par value at which the shares are repurchased or issued. One method is the costing method where the above or below par value is not taken to a separate account, but everything is treated in the Treasury Stock account. The other method is the par value method. This treats the above or below par value in the Additional Paid-in Capital account. This is the method adopted here. Note that Treasury Stock is a contra account to the Common Stock.

e) Bond Premium Amortization (straight-line method) is calculated as follows: $20,000/10 *6/12 = $1,000 for six months. A Premium on Bonds arises when the bonds are trading at above the face value. The amortization of Bond Premium is the write-down of the excess premium paid or received over and above the face value of the Bond. In this case, we used the straight-line method.