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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

(Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.

Instructions

  1. What general rule should be applied to determine the amount at which the land should be recorded?
  2. Under what circumstances should this transaction be recorded at the fair value of the land?
  3. Under what circumstances should this transaction be recorded at the fair value of the stock issued?
  4. Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.

Dividends are sometimes said to have been paid “out of retained earnings.” What is the error, if any, in that statement?

Twenty-five thousand shares reacquired by Elixir Corporation for \(53 per share were exchanged for undeveloped land that has an appraised value of \)1,700,000. At the time of the exchange, the common stock was trading at $62 per share on an organized exchange.

Instructions

a) Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method.

b) Briefly identify the possible alternatives (including those that are totally unacceptable) for quantifying the cost of the land and briefly support your choice.

In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?

Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.
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