P15-1 (Equity Transactions and Statement Preparation) On January 5, 2007, Drabek

Corporation received a charter granting the right to issue 5,000 shares of $100 par value,
8% cumulative and nonparticipating preferred stock, and 50,000 shares of $5 par value
common stock. It then completed these transactions. Jan. 11 Issued 20,000 shares of
common stock at $16 per share. Feb. 1 Issued to Robb Nen Corp. 4,000 shares of
preferred stock for the following assets: machinery with a fair market value of $50,000; a
factory building with a fair market value of $110,000; and land with an appraised value
of $270,000. July 29 Purchased 1,800 shares of common stock at $19 per share. (Use cost
method.) Aug. 10 Sold the 1,800 treasury shares at $14 per share. Dec. 31 Declared a
$0.25 per share cash dividend on the common stock and declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a $175,700 net income.
Instructions (a) Record the journal entries for the transactions listed above. (b) Prepare
the stockholders’ equity section of Drabek Corporation’s balance sheet as of December
31, 2007.

(a) January 11
Cash (20,000 X $16)........................................................................... 320,000
Common Stock (20,000 X $5) .................................................
100,000
Paid-in Capital in Excess of Par—Common.........................
220,000

February 1
Machinery........................................................................................... 50,000
Factory Building................................................................................. 110,000
Land .......................................................................................270,000
Preferred Stock (4,000 X $100)...............................................
400,000
Paid-in Capital in Excess of Par—Preferred.........................
30,000

July 29
Treasury Stock (1,800 X $19)............................................................ 34,200
Cash...........................................................................................
34,200

August 10
Cash (1,800 X $14)............................................................................. 25,200
Retained Earnings (1,800 X $5)........................................................ 9,000*
 Treasury Stock.........................................................................
34,200

*(The debit is made to Retained Earnings because no Paid-in Capital *from

Treasury Stock exists.)

December 31
Retained Earnings.............................................................................. 37,000
Cash Dividend Payable—Common........................................
5,000*
Cash Dividend Payable—Preferred.......................................
32,000**

*Common Stock Cash Dividend:

Common shares outstanding 20,000
Common cash dividend X $.25
$5,000

**(4,000 X 100 X 8%)

December 31
Income Summary............................................................................... 175,700
Retained Earnings.................................................................... 175,700

(b) DRABEK CORPORATION

Stockholders’ Equity
December 31, 2007
Capital stock
Preferred stock—par value $100 per share,
8% cumulative and nonparticipating,
5,000 shares authorized,
4,000 shares issued and outstanding $400,000
Common stock—par value $5 per share,
50,000 shares authorized,
20,000 shares issued and outstanding 100,000
Total capital stock 500,000
Additional paid-in capital
Paid-in capital in excess of par—preferred $ 30,000
 Paid-in capital in excess of par—common 220,000
250,000
Total paid-in capital
750,000
Retained earnings 129,700*
Total stockholders’ equity $879,700

*($175,700 – $9,000 – $37,000)