Your company could have purchased $120,000 of 5 year, 7% bonds of Medium Company for 102 on April 1, 2021. You planned to hold these bonds for more than one year but maybe not all 5 years. The bonds pay interest annually on March 31. You would use straight line amortization on the premium. The bonds had a market value of 103 on December 31, 2021.

In another transaction, you would have sold 1,000 shares of new 6%, $80 par PREFERRED stock on January 1, 2021, for $82.00 per share. At the beginning of 2021, you had received authorization for 2,000 shares of this $80.00 par preferred stock. Because your company paid cash dividends to common stockholders, you would have declared and paid a full year cash dividend to preferred stockholders in December of 2021 as well.

In a third transaction, you would have purchased 900 shares of your own common stock for cash when the price dropped to $29.00 per share on July 1, 2021. You would have later resold 600 of the shares when the price rose to 34.00 per share on October 1, 2021. Your company would use the cost method to account for these treasury stock transactions. Because of these transactions, your company would have saved the $2.00 cash dividends on 300 shares in December of 2021.

INSTRUCTIONS

Prepare the entries which would have been made to record the events of Alternative B including any adjusting entries on December 31, 2021.

Answer rating: 100% (QA)

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