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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

(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.

Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation鈥檚 capital stock.

S.no.

Particular

Folio

Debit \(

Credit \)

May 2

Cash

192,000

Capital Stock

192,000

(Issued 12,000 shares of \(5 par value common stock at \)16 per share)

May 10

Cash

600,000

Capital Stock

600,000

(Issued 10,000 shares of \(30 par value preferred stock at \)60 per share)

May 15

Capital Stock

15,000

Cash

15,000

(Purchased 1,000 shares of common stock for the treasury at \(15 per share)

May 31

Cash

8,500

Capital Stock

5,000

Gain on Sale of Stock

3,500

(Sold 500 shares of treasury stock at \)17 per share)

Instructions

On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions.

Washington Company has the following stockholders鈥� equity accounts at December 31, 2017.

Common Stock (\(100 par value, authorized 8,000 shares) \)480,000

Retained Earnings 294,000

Instructions

a. Prepare entries in journal form to record the following transactions, which took place during 2018.

1. 280 shares of outstanding stock were purchased at \(97 per share. (These are to be accounted for using the cost method.)

2. A \)20 per share cash dividend was declared.

3. The dividend declared in (2) above was paid.

4. The treasury shares purchased in (1) above were resold at \(102 per share.

5. 500 shares of outstanding stock were purchased at \)105 per share.

6. 350 of the shares purchased in (5) above were resold at \(96 per share.

b.Prepare the stockholders鈥� equity section of Washington Company鈥檚 balance sheet after giving effect to these transactions, assuming that the net income for 2018 was \)94,000. State law requires restriction of retained earnings for the amount of treasury stock.

(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January 2015 and reported the following results for each of its 3 years of operations.

2015 \(260,000net loss 2016 \)40,000 net loss 2017 \(800,000 net income

At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.

8% cumulative preferred stock, par value \)100;

authorized, issued, and outstanding 5,000 shares \(500,000

Common stock, par value \)1.00; authorized 1,000,000 shares;

issued and outstanding 750,000 shares \(750,000

Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.

Instructions

  1. Compute the book value of the common stock on December 31, 2017.
  2. Compute the book value of the common stock on December 31, 2017, assuming that the preferred stock has a liquidating value of \)106 per share.

(Equity Items on the Balance Sheet) The following are selected transactions that may affect stockholders鈥� equity.

  1. Recorded accrued interest earned on a note receivable.
  2. Declared a cash dividend.
  3. Declared and distributed a stock split.
  4. Approved a retained earnings restriction.
  5. Recorded the expiration of insurance coverage that was previously recorded as prepaid insurance.
  6. Paid the cash dividend declared in item 2 above.
  7. Recorded accrued interest expense on a note payable.
  8. Declared a stock dividend.
  9. Distributed the stock dividend declared in item 8.

Instructions

In the following table, indicate the effect each of the nine transactions has on the financial statement elements listed. Use the following code: I = Increase, D = Decrease, NE = No effect.

Item

Asset

Liabilities

Stockholders鈥� Equity

Paid-in Capital

Retained

Earnings

Net Income
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