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Chapter 13: Q47PGB_3 (page 722)

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity \) 17,050,000

Common Stock—$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Tillman Comfort Specialists stock for cash. Explanations are not required.

Short Answer

Expert verified

Answer

Cash will be debited, and preferred stock will be credited by $1,300,000.

Cash will be debited, and common stock will be credited by $1,350,000

Step by step solution

01

Basic Introduction

The issue of shares is the process in which corporations allocate new shares to the stockholders (individuals or corporations) through initial and further offer in recognize stock exchange.

02

Journal entry to issuance of stock

Date

Transaction

Debit

Credit

Cash

$1,300,000

Preferred Stock

$1,300,000

Cash ($1 * 1,350,000)

$1,350,000

Common Stock

$1,350,000

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Most popular questions from this chapter

Vollmer, Inc. had reported the following balances:

December 31, 2019 December 31, 2018

Net Income \( 80,000 \) 60,000

Preferred Dividends 2,000 5,000

Total Stockholders’ Equity 340,000 310,000

Stockholders’ Equity attributable to Preferred Stock 20,000 20,000

Number of Common Shares Outstanding 10,000 14,000

11. Compute Vollmer’s earnings per share for 2019.

12. Compute Vollmer’s price/earnings ratio for 2019, assuming the market price is $40 per share.

13. Compute Vollmer’s rate of return on common stockholders’ equity for 2019.

Journalizing treasury stock transactions and reporting stockholders’ equity

Southern Amusements Corporation had the following stockholders’ equity on

November 30:

Paid-In Capital:

Common Stock—\(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders’ Equity \) 55,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

3. How many shares of common stock are outstanding after the purchase oftreasury stock?

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

1. What is the main advantage they gain by selecting a corporate form of business now?

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity

The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 350,000 shares

authorized, 32,000 shares issued and outstanding

Paid-In Capital:

160,000

\) 320,000

650,000

Retained Earnings

Total Stockholders’ Equity \( 810,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 330,000

Total Paid-In Capital

During 2018, Goldstein completed the following selected transactions:

Feb. 6 Declared a 15% stock dividend on common stock. The market value of

Goldstein’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.

Requirements

3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—$1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Voyage Comfort Specialists’ stock for cash. Explanations are not required.
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