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Chapter 15: Question 2E (page 812)

(Recording the Issuance of Common and Preferred Stock) Kathleen Battle Corporation was organized on January 1, 2017. It is authorized to issue 10,000 shares of 8%, \(100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of \)1 per share. The following stock transactions were completed during the first year.

Jan. 10 Issued 80,000 shares of common stock for cash at \(5 per share.

Mar. 1 Issued 5,000 shares of preferred stock for cash at \)108 per share.

Apr. 1 Issued 24,000 shares of common stock for land. The asking price of

the land was \(90,000; the fair value of the land was \)80,000.

May 1 Issued 80,000 shares of common stock for cash at \(7 per share.

Aug. 1 Issued 10,000 shares of common stock to attorneys in payment of

their bill of \)50,000 for services rendered in helping the company

organize.

Sept. 1 Issued 10,000 shares of common stock for cash at \(9 per share.

Nov. 1 Issued 1,000 shares of preferred stock for cash at \)112 per share.

Instructions

Prepare the journal entries to record the above transactions.

Short Answer

Expert verified

The amount in excess of the par value of the shares is required to be transferred to paid-in capital in excess of the par value account.

Step by step solution

01

Meaning of Preferred Stocks

Preferred stock is a form of stock with exceptional privileges over normal stock. Inside the occasion of bankruptcy or merger, favored traders get monthly dividends and are paid first.

02

Preparing Journal Entries

Date

Particular

Debit $

Credit $

January 10

Cash A/c.

400,000

Common stock

80,000

Paid-in Capital in excess of stated

Value-Common stock A/c.

320,000

To record the issue of share.

March 1

Cash A/c.

540,000

Preferred Stock

500,000

Paid-in Capital in excess of par

Preferred Stock A/c.

40,000

To record the issue of share.

April 1

Land A/c.

80,000

Common stock

24,000

Paid-in Capital in excess of stated

Value-Common stock A/c.

56,000

To record the issue of share.

May 1

Cash A/c.

560,000

Common stock

80,000

Paid-in Capital in Excess of stated

Value -Common stock A/c.

480,000

To record the issue of share.

August 1

Organization Expense A/c.

50,000

Common stock A/c.

10,000

Paid-in capital in excess of

Stated value- common stock A/c.

40,000

To record the issue of share.

September 1

Cash A/c.

90,000

Common Stock A/c.

10,000

Paid-in Capital in excess of

Stated value-common stock A/c.

80,000

To record the issue of share.

November 1

Cash A/c.

112,000

Preferred Stock A/c.

100,000

Paid-in Capital in Excess of

Par- Preferred stock A/c.

12,000

To record the issue of share.

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Most popular questions from this chapter

Faith Evans Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ. Faith Evans Corp. has issued 10,000 units. Each unit consists of a \(500 par, 12% subordinated debenture and 10 shares of \)5 par common stock. The units were sold to outside investors for cash at \(880 per unit. Prior to this sale, the 2-week ask price of common stock was \)40 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value.

Instructions

  1. Prepare the journal entry to record Evans’ transaction, under the following conditions.
  2. Employing the incremental method.
  3. Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.
  4. Briefly explain which method is, in your opinion, the better method.

(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

Indicate how each of the following accounts should be classified in the Equity section.

  1. Share Capital—Ordinary.
  2. (b) Retained Earnings.
  3. Share Premium—Ordinary.
  4. Treasury Shares.
  5. Share Premium—Treasury
  6. Share Capital—Preference
  7. Accumulated Other Comprehensive Income.

Why is the distinction between paid-in capital and retained earnings important?

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.
See all solutions

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