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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

(Dividends and Splits) Myers Company provides you with the following condensed balance sheet information.

Asset

Current assets \(40,000

Equipment (net) 250,000

Intangibles 60,000

Total assets \)410,000

Liabilities and Stockholders鈥� Equity

Current and long-term liabilities \(100,000

Stockholders鈥� equity

Common stock (\)5 par) \( 20,000

Paid-in capital in excess of par 110,000

Retained earnings 180,000 310,000

Total liabilities and stockholders鈥� equity \)410,000

Instructions

For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders鈥� equity. (Each situation is independent.)

  1. Myers declares and pays a \(0.50 per share cash dividend.
  2. Myers declares and issues a 10% stock dividend when the market price of the stock is \)14 per share.
  3. Myers declares and issues a 30% stock dividend when the market price of the stock is \(15 per share.
  4. Myers declares and distributes a property dividend. Myers gives one share of its equity investment (ABC stock) for every two shares of Myers Company stock held. Myers owns 10,000 shares of ABC. ABC is selling for \)10 per share on the date the property dividend is declared.
  5. Myers declares a 2-for-1 stock split and issues new shares.

Nottebart Corporation has outstanding 10,000 shares of \(100 par value, 6% preferred stock and 60,000 shares of \)10 par value common stock. The preferred stock was issued in January 2017, and no dividends were declared in 2017 or 2018. In 2019, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding.

  1. What is meant by a stock split effected in the form of a dividend?
  2. From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend.
  3. How should a stock dividend that has been declared but not yet issued be classified in a balance sheet? Why?

Where in the financial statements is preferred stock normally reported?

(Stock Dividends) Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the accounting implications of such an authorization with you before the next meeting of the board of directors.

Instructions

  1. The first topic the vice president wishes to discuss is the nature of the stock dividend to the recipient. Discuss the case against considering the stock dividend as income to the recipient.
  2. The other topic for discussion is the propriety of issuing the stock dividend to all 鈥渟tockholders of record鈥� or to 鈥渟tockholders of record exclusive of shares held in the name of the corporation as treasury stock.鈥� Discuss the case against issuing stock dividends on treasury shares.
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