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Chapter 15: Question 2 BE (page 811)

Swarten Corporation issued 600 shares of no-par common stock for \(8,200. Prepare Swarten’s journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of \)2 per share.

Short Answer

Expert verified

If there is no stated value, the cash account is credited, and common stock is debited. But if there is a stated value, paid-in capital in excess of the stated value is also credited.

Step by step solution

01

Meaning of Common Stock

A sort of investment that indicates a corporation's ownership is referred to as "common stock." The general public elects the board of directors, and they have a role in company decisions. This form of stock ownership frequently yields larger profits over time.

02

Preparing Swarten’s journal entry

S.no

Particular

Folio

Debit USD

$

Credit USD

$

(a)

Cash A/c Dr.

8,200

To common stock Cr.

8,200

(being share issued at no stated value)

(b)

Cash A/c Dr.

8,200

To common stock (600$2) Cr.

1,200

To paid-in capital in excess

Of stated value-common stock Cr.

7,000

(being share issued at stated value)

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Most popular questions from this chapter

(Comparison of Alternative Forms of Financing) Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling \(4,200,000.

Jana Kingston Co.

Current liabilities

\) 300,000

Long-term debt, 10%

1,200,000

Common stock (\(20 par)

2,000,000

Retained earnings (Cash dividends, \)328,000)

700,000

\(4,200,000

Mary Ann Benson Co.

Current liabilities

\) 600,000

Common stock (\(20 par)

2,900,000

Retained earnings (Cash dividends, \)328,000)

700,000

\(4,200,000

For the year, each company has earned the same income before interest and taxes.

Jana Kingston Co.

Mary Ann Benson Co.

Income before interest and taxes

\)1,200,000

\(1,200,000

Interest expense

120,000

0

1,080,000

1,200,000

Income taxes (45%

486,000

540,000

Net income

\) 594,000

\( 660,000

At year end, the market price of Kingston’s stock was \)101 per share, and Benson’s was $63.50.

Instructions

  1. Which company is more profitable in terms of return on total assets?
  2. Which company is more profitable in terms of return on common stockholders’ equity?
  3. Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year.
  4. From the point of view of net income, is it advantageous to the stockholders of Jana Kingston Co. to have the long-term debt outstanding? Why?
  5. What is the book value per share for each company?

(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

1. Which of the following does not represent a pair of GAAP/ IFRS-comparable terms?

(a) Additional paid-in capital/Share premium.

(b) Treasury stock/Repurchase reserve.

(c) Common stock/Share capital—ordinary.

(d) Preferred stock/Preference shares.

(Preferred Dividends) Matt Schmidt Company’s ledger shows the following balances on December 31, 2017.

7% Preferred stock—\(10 par value, outstanding 20,000 shares \) 200,000

Common stock—\(100 par value, outstanding 30,000 shares 3,000,000

Retained earnings 630,000

Instructions

Assuming that the directors decide to declare total dividends in the amount of \)366,000, determine how much each class of stock should receive under each of the conditions stated below. One year’s dividends are in arrears on the preferred stock.

  1. The preferred stock is cumulative and fully participating.
  2. The preferred stock is noncumulative and nonparticipating.
  3. The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

(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.
See all solutions

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