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Chapter 15: Question 1E (page 812)

(Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.

Jan. 10 Issued 80,000 shares for cash at \(6 per share.

Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for

\)35,000 for services rendered in helping the company to

incorporate.

July 1 Issued 30,000 shares for cash at \(8 per share.

Sept. 1 Issued 60,000 shares for cash at \)10 per share.

Instructions

  1. Prepare the journal entries for these transactions, assuming that the common stock has a par value of \(5 per share.
  2. Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of \)3 per share.

Short Answer

Expert verified

Issuing a share requires a company to pass a journal entry such that the cash account is debited and the common stock account is credited.

Step by step solution

01

Meaning of Shares

Shares are regarded as one of the finest long-term investments, outperforming property, corporate bonds, government bonds, and other asset classes. This helps the investor for investing their money in the long term.

02

Preparing Journal Entries assuming that the Common Stock has a par value of $5 per share.

Date

Particular

Folio

Debit $

Credit $

January 10

Cash A/c

480,000

Common stock

400,000

Paid-in Capital in excess of par

Common stock A/c

80,000

To record the issue of share.

March 1

Organizational Expense A/c

35,000

Common stock

25,000

Paid-in Capital in excess of par

Common stock A/c.

10,000

To record the issue of share.

July 1

Cash A/c.

240,000

Common stock

150,000

Paid-in Capital in excess of par

Common stock A/c.

90,000

To record the issue of share.

September 1

Cash A/c.

600,000

Common stock

300,000

Paid-in Capital in excess of par

Common stock A/c.

300,000

To record the issue of share.

03

Preparing Journal Entries assuming that the Common Stock is no-par with a stated value of $3 per share.

Date

Particular

Folio

Debit $

Credit $

January 10

Cash A/c.

480,000

Common stock

240,000

Paid-in Capital in excess of par

Common stock A/c.

240,000

To record the issue of share.

March 1

Organizational Expense A/c

35,000

To Common stock

15,000

To Paid-in Capital in excess of stated

Value Common stock A/c

20,000

To record the issue of share.

July 1

Cash A/c

240,000

Common stock

90,000

Paid-in Capital in excess of stated

value common stock A/c

150,000

To record the issue of share.

September 1

Cash A/c

600,000

Common stock

180,000

Paid-in Capital in excess of stated

value -Common stock A/c

420,000

To record the issue of share.

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Most popular questions from this chapter

The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company’s ordinary cash dividends.” How would a partial liquidating dividend be accounted for in the financial records?

Seles Corporation’s charter authorized issuance of 100,000 shares of \(10 par value common stock and 50,000 shares of \)50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

  1. Issued a \(10,000, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for \)106 a share.
  2. Issued 500 shares of common stock for equipment. The equipment had been appraised at \(7,100; the seller’s book value was \)6,200. The most recent market price of the common stock is \(16 a share.
  3. Issued 375 shares of common and 100 shares of preferred for a lump sum amounting to \)10,800. The common had been selling at \(14 and the preferred at \)65.
  4. Issued 200 shares of common and 50 shares of preferred for equipment. The common had a fair value of \(16 per share; the equipment has a fair value of \)6,500.

Instructions

Record the transactions listed above in journal entry form.

(Stock Dividends and Splits) The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions.

Instructions

  1. What is a stock dividend? How is a stock dividend distinguished from a stock split (1) from a legal standpoint and (2) from an accounting standpoint?
  2. For what reasons does a corporation usually declare a stock dividend? A stock split?
  3. Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend

(Preferred Stock Dividends) Cajun Company has outstanding 2,500 shares of \(100 par, 6% preferred stock and 15,000 shares of \)10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.

Instructions

Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per share amounts using the format shown below

Assumptions

(a)

Preferred, noncumulative

And nonparticipating

(b)

Preferred, cumulative, and fully participating

Year

Paid-out

Preferred

Common

Preferred

Common

2012

\(13,000

2013

\)26,000

2014

\(57,000

2015

\)76,000

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?
See all solutions

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